MoneyTalk (June 2004)

by Arch Financial Planning Limited

DUST OFF THOSE OLD PENSIONS

For those of you who have not yet retired, the issue of whether you will have enough income in retirement is one which will inevitably continue to grow in importance, whether you are relying mainly on the State pension, private pension arrangements, or your membership of one or more occupational pension schemes.

If you are relying mainly on the State pension we can but echo the words of Jeff Rooker (Minister of State, Department of Social Security, 29 November 1999) ‘Anyone who retires solely on the Basic State Retirement Pension and makes no other provision will, as has always been the case, retire in abject poverty.’

If you are relying mainly on private pension arrangements you will have noticed that the projected benefits (now subject to the ‘Statutory Money Purchase Illustrations’ rules) are around half the value that there were two or three years ago. This is because such projections now have to show you the real value of your pension, which means they not only have to be in today’s prices but assume you will want an inflation linked pension and that you will want your spouse to continue receiving the pension if you die first.

If you are relying mainly on your membership of one or more occupational pension schemes you will have noticed the growing number of organisations and companies which have not been able to keep up with the greatly increased funding requirements to provide those promised benefits. For example, a quote from Pensions Week 14 June 2004 ‘The £1 billion Surrey County Council pension fund has abandoned its active balanced asset management structure as it deals with a funding level that is feared to have fallen to as low as 60%.’ Put more simply that means they are in excess of £300 million short of the funds they should have to provide their employees with their expected pensions. Can this be resolved quickly? To quote from the same article ‘Taylor (Surrey’s Executive Director for Performance and Resources) recently told the annual National Association of Pension Funds conference that the scheme planned to be fully funded in 13 years.’

You should not wait until you are about to retire before you find out whether there is much value in your old pensions. However, there are even more important reasons for taking action now. A delay to do so could actually reduce the value of your eventual pension, or possibly reduce the amount of tax free cash that you would otherwise be entitled to when you retire. Now would be a good time to ‘dust them off’ and carry out a review of exactly what you have got. For further information visit a new section of our website http://www.arch-fp.co.uk/pensions_dust_off.htm

If you are interested in reviewing your old pension plans please contact your usual Arch adviser, or if you are not currently aware of your Arch adviser, please contact Sarah Bond at our Cranleigh office on 01483 204600, or email direct@arch-fp.co.uk and we will be pleased to tell you whether you are likely to benefit from transferring them.

Risk Factors

These notes are intended as a guide only and do not replace the full product details that accompany each pension recommendation. An investment into a Stakeholder Pension or other Personal Pension Plan is intended as a long-term investment. Where past performance is mentioned please note that the past is not necessarily a guide to future performance. For example, the treatment of pension funds has changed with the removal of tax credit on UK equity investment. The value of units may go down as well as up and your pension fund may be less than the amount you have invested. Tax relief depends on individual circumstances and tax rates and laws may change in the future.

Where a pension transfer from an occupational pension scheme to a Stakeholder Pension, Personal Pension Plan or Section 32 Buy Out Plan is recommended you need to understand the benefits of your previous employer's scheme that you are giving up; the fact that your former employer promises to pay the benefits at their present levels and that those benefits will grow by an inflation factor. The benefits from the Stakeholder Pension, Personal Pension Plan or Section 32 Buy Out Plan are not guaranteed, instead, they depend on the charges made by the product provider, the investment performance achieved on the underlying funds and the level of annuity rates available at the time you decide to take the benefits.

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Arch Financial Planning Limited

Head Office & Registered Office: Caswall House, 6 Wharf Street, Godalming, Surrey GU7 1NN
Tel: 01483 527278, Fax: 01483 527279

Administration Office: Arch House, Collins Court, 39 High Street, Cranleigh, Surrey GU6 8AS
Tel: 01483 204600, Fax: 01483 204611

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