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Copyright 2006 Ray Prince
Background
I’ve been working in the world of pensions for over 12 years now and looking back the amount of change has been relentless. In that time we’ve seen the introduction of stakeholder pensions, Gordon Brown taxing pension funds an extra £5bn a year as soon as Labour came to power in 1997 and a couple of years ago there was talk of the NHS Pension normal retirement age being increased to 65 (fortunately this did not happen).
I’ve also dealt with many doctors and dentists, advising them what their best strategy should be for their future. By being involved with many different planning scenarios I’ve been able to see where clients have made mistakes with their retirement planning. Not on purpose of course, but usually down to lack of information and time.
Planning Mistakes
So what are some of the common mistakes and what action can you take to avoid them?
Let’s look at one in particular.
Believing a Personal Pension is an Investment
A personal pension is not actually an investment. It is a tax wrapper that allows you to receive the tax rebates at either basic rate or higher rate tax.
For example, let’s say you invest £300 per month into a Personal Pension Plan with one of the major insurance companies. They have approximately 70 funds to choose from with their Individual Pension Plan. So, the actual investment that you are making is when you decide where your money will be invested.
Their funds cover all types of risk (lower, medium and high); therefore the key is to only invest the money in funds that are in line with your attitude to risk.
If you have a Personal Pension Plan(s) or Additional Voluntary Contribution Plan(s), analyse your latest statement or policy document to see where your money is being invested.
The next step is to review the level of risk that you are comfortable with and to alter the funds if necessary. With the majority of pension companies you are able to switch money from one fund to another (there may be a charge) or redirect future contributions.
If the funds that your pension company is offering have poor past performance and poor prospects for future performance, you may be able to transfer to another pension company with better prospects for future performance (check for any transfer penalties). Do bear in mind though that past performance is no guide to future performance.
Action Point
Don’t underestimate the potential impact on your retirement income. You need to be aware of the planning mistakes that should be avoided so make sure you do your research before taking any more action.
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Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Just visit www.medicaldentalfs.com to get your free retirement guide, How To Avoid The 7 Most Common Retirement Planning Mistakes. Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority.
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