How We Can Help You
This web site tries to demystify the fairly complex world of UK pensions.
If you want to study pensions we show you The Useful Tools, which you can print out and use.
(For further details see How we can help you buy a Pension).
As with any product, there are good buys and bad buys in the pensions market. It all boils down to avoiding the complete "no no's" and knowing how to pick the right pension for you from the best of the rest.
If you want to get a pension, the bottom line is that we suggest you discuss your needs with an IFA. She can advise you on the best thing to do and come up with a tailor made plan for you. We tell you how to go about finding one.
If necessary we can put you in contact with one (see Get a pension quote).
See how you can get the cheapest Stakeholder pension
It's best to use an IFA
We need to make clear our firm belief that if you want to buy a personal pension your best bet is to talk to an Independent Financial Advisor (IFA), preferably once you're armed with a few facts from here.
(See The benefits of using an IFA and Choosing an IFA).
This will make buying the right pension much easier for you. Although IFAs will probably cost you more than an Execution only option, they must, by law, give what's termed best advice and should be easily able to identify the best pension for you.
However, if you do your homework fairly thoroughly, you could save money by buying direct from a pension provider.
But you will have to be careful. If things go wrong, it seems your chances of compensation would be limited compared to if you go through an IFA. (See Execution only and Buying direct is not always best).
Top
Which type of pension?
If you can, do join an Occupational Pension plan. They're usually the best and you'll see why if you read more about them.
However if you're self-employed or your employers don't provide one then you should seriously consider getting a personal pension - most probably one of the new low charging, highly flexible Stakeholder Pensions. (See Personal Pensions vs Stakeholder below).
Pensions certainly can get complex. But there's no reason why you can't understand how they work. If you haven't already done so then we suggest you read The Basics. Or read on here for more info on how to buy a pension.
Top
The Three Golden Rules for buying a pension
Rule 1
It is vital that you shop around because a pension is one of the most important and probably biggest purchases you'll ever make. To do this you can use an IFA (See Why It's best to use an IFA).
Choose one carefully (see Choosing an IFA)
Rule 2
The key words are charges and flexibility. Check what these are on any pension you're considering.
Rule 3
Be realistic about how much you should save and how much you'll really need in retirement e.g. for leisure, long term domestic help (will you really still be doing DIY?) and, even later on, nursing care.
Top
Past Performance
You will usually be told about the past performance of the pension fund you're being sold;
This means that the savings in the fund have grown by X% thanks to the investment growth.
But it's not quite as simple as that.
Past performance is supposed to be due to the talents of the fund managers. But are the same ones still running the pension fund?
In any event never assume that past performance guarantees future success.
Unlike football stars, Fund managers can get credit - and blame - when it's not really due. They can look good thanks to decisions taken years ago by others, who were taking the long term view, which has now led to good results.
There are some interesting arguments about how relevant past performance is.
Johnson Fry invested £1,000 in the previous year's worst performing unit trust. They kept on putting in £1,000 a year - adding on any profit - and did this continually every year since 1973.
By 1998 they had made £92,000.
If however they had done the same, except into the previous years best performing fund, they would only have made £72,000. Yes that's right they made £20,000 more by relying on the previous year's worst performing unit trust.
We're not recommending the above example as an investment strategy. (Actually, for those in the investment business, we appreciate that it relates more to the performance of specialist funds than the merits of the past performance of fund managers) but we thought we'd chuck it in for you.
So past performance is not all it's cut out to be.
It's probably only used so much because it's something to hang onto in a sea of uncertainty.
Nobody knows what will happen in the future, except of course that we'll all keep growing older and eventually need a decent pension...
There is currently a campaign to have all past performance figures kept out of pension sales information.
Various publications do surveys on fund performance including Money Management Magazine and Life Pensions Moneyfacts) see Useful Contacts.
Top
Buying direct is not always best
You'd think that if you by-pass an IFA and buy direct from the pension / insurance company you'd save any commission. Wrong.
You might be charged the same. The pension / insurance company often simply keeps the commission it would have paid. Bless.
Top
Buying from household names
You might want to play it safe by going with one of these. But, contrary to the confidence their adverts try and induce, don't forget that some of them were directly involved with the pensions selling scandal.
While any such culprits may have changed their ways, at least for the time being, thanks to government action, always remember that these guys are businesses trying to make a profit.
Sadly it seems that their main interest is not to secure a comfortable retirement for you but to take your hard earned money. (And if anyone from the industry reading this feels upset. Three very disappointing words for you to mull over guys: "Pension mis-selling scandal".
Also see A Cautionary tale.
The pension / insurance companies have their own fixed range of products. These may turn out to be suitable for you but there may well be something better out there.
It may be worthwhile finding out what each ones best products are and cherrypicking e.g. taking a personal pension from one, life insurance from another.
Top
A cautionary tale
It was announced recently that anyone who gave £100 a month into a major household name's so called "Adaptable Pension Plan" for 2 years, but then made no further payments, will get nothing at all when the policy matures in 30 years, thanks to the way the charges were front-end loaded.
Don't take anything at face value, whether it's the name of a policy or that it's being sold by a household name.
For example there's a reassuringly respectable, well known firm, who proudly advertise that they don't give commissions to third parties. That's right they don't, but they do seem to have among the highest charges around. The accumulated effect of these would cost your eventual pension fund many thousands of pounds.
(Note that discretion, above, was our attempt to be polite to Equitable Life. It was written before they joined the chapter on pensions scandals - for breaking their promise to pay guaranteed annuities and - apparently, m'lud - continuing to sell them when they knew they wouldn't be able to deliver...)
Top
What to watch out for
Information Overload
Impulse buying
Sales Psychology
Watch out for the charmers
Information Overload
A major problem with researching pensions is the amount of information that confronts you.
Pension providers carefully create and package their products, just like any business. Huge sums are spent on advertising and marketing all "financial products" including pensions.
Some IFAs feel that unscrupulous pension providers are well aware that "normal human beings" are likely to be confused by the terms they use and the general complexity hidden behind apparently accessible brochures. Too many lack transparency.
Impulse buying
Shortness of time added to our tendency to impulse buy makes it easy to make a mistake with one of the biggest purchases we are ever likely to make. Be careful. See How to make decisions.
Top
Sales Psychology
When you look into buying a pension the chances are you'll find it's a minefield of glossy brochures and confusing claims.
A huge amount of money is spent on supposedly explaining the issues in an apparently "easy to follow" way.
But actually that's often not the true intention - which is rather to achieve what can be termed "confusion marketing": If the customer is confused they're more likely to buy something that's bad for them but profitable for the supplier.
We don't want to sound too cynical. There really are some good people in the business who get a buzz from finding you the best possible pension. (To each their own.) But you'll recognise confusion marketing in other businesses too.
Perhaps you've tried to compare prices for different mobile phones... it's almost as if the different suppliers don't really want to be compared easily with each other. There are so many variables and catches, such as different types of charges at different times of the day.
So what do you do? If you want a mobile, without taking real time and effort to conduct some serious research, you probably just have to bite the bullet, buy one and hope for the best.
But if you do this with a pension it could be a serious mistake which the "older you" will regret in due course.
Fortunately, with pensions, you can turn to an IFA to help you and if they don't give you best advice you can claim compensation.
Top
Watch out for the charmers
A major factor of sales psychology is that we tend to buy things from people we like. Are you buying your pension because the salesperson is pleasant, attractive?
Perhaps you would be best off choosing someone who isn't quite so agreeable. After all if they don't rely on charm, yet are still in business, it could well be due to word of mouth recommendations - which are the IFAs bread and butter.
Top
How we can help you buy a Pension
As with any product, there are good buys and bad buys in the pensions market. It boils down to avoiding the complete "no no's" and knowing how to pick the right pension for you from the best of the rest.
We strongly recommend that you go through a selected Independent Financial Adviser
We give you a whole section on the basics arming you with the essential facts. When you're ready to start buying a pension we've got various Useful Tools which you can print off such as:
Pensions are often called the most complex area of personal finance. But don't let that put you off.
The basics are easy and they're all you need to know. Spend a few minutes reading them. It may be a little painful but it'll be worthwhile. Take me to the basics.
See how you can get the cheapest Stakeholder pension
Top
Tracker Funds
These are "passive funds" which aim to follow the performance of a particular stockmarket index such as the FTSE 100 or FTSE All Share Index.
They simply rise and fall in value in line with the selected share prices.
Top
|
