Planning for the future - Pensions
Just wanted to take a moment to quickly touch on the topic of Planning!! As you know this is my favourite topic. Whether it’s planning for the short term or for the long term!!!
But today I’d like to focus on the long term. Have you been thinking of retirement at all? FIRE? Financial Independence? Retire Early?
Well I’ll be diving deeper into this in the near future but for the moment let's focus specifically on Pensions! I recently found out that in the UK alone there is up to £50 billion unclaimed lost in financial products such as pensions, bank accounts, insurance policies and savings. That’s about 20 million people not chasing after money that belongs to them. Have you accumulated multiple pension pots from different jobs you’ve worked in? If so, do you keep track of them?
I personally find it much easier to manage by combining all these into one. There are multiple ways to achieve this:
Pension bee: Their technology platform is designed to make it easy for customers to combine their pensions into one diversified online plan, so they can take the first step towards financial freedom. We create pension calculators and retirement forecasting tools to help our customers plan ahead, so they can build a clearer picture about what they should be contributing
The Government's Pension Tracing Service: Use this service to find contact details to search for a lost pension.
Gretel: Using modern technology that seamlessly interfaces with an ecosystem of financial institutions, we make the financial world a smaller place by creating a "hub" which acts as a one stop shop for finding and recovering lost assets.
SIPP: A self-invested personal pension (SIPP) is a pension 'wrapper' that allows you to save, invest and build up a pot of money for when you retire. It is a pension plan that lets you choose how your savings are invested. A SIPP is a type of defined contribution personal pension, which means the value of your pension pot at retirement depends on the amount you pay in and the performance of your investments.
Why choose a SIPP? A SIPP can be a good option if you want to combine your pension pots into one single fund and then actively manage your money yourself, or choose a money manager to do this for you.
With other types of pension, decisions about how to invest your money are in the hands of your pension provider.
This means that a SIPP comes with a certain level of responsibility, and requires savers to have some understanding of investing and to keep an eye on their investments.
You can usually opt to pay quite a low monthly amount into your SIPP, but a higher monthly contribution sometimes gives you access to more investment options.
How and when can you access money in a SIPP? A SIPP can be accessed from the age of 55 (57 from 2028), no matter who your provider is. But you can leave the money in for longer if you prefer.
The value of your SIPP will be the result of:
The total amount of contributions paid into it
The length of time those contributions had to grow
The performance of its investments
The amount of fees that were charged
When you decide to take money out of your SIPP, your options are very similar to traditional pensions. You could:
Take all of it out as a lump sum
Take out a smaller lump sum and leave the rest invested for later use
Drawdown a smaller amount on a regular basis
Buy an annuity
Leave it for access at a later date when you need it
Tax Benefits: You can withdraw 25% of your SIPP tax-free. The other 75% will count towards your annual earnings and will be taxed depending on your income tax band.
For example, if your annual earnings (including the amount you withdraw from your SIPP) make you a higher-rate taxpayer, you’ll need to pay 40% tax on earnings above £50,270.
There are no clear financial benefits of combining all of your pensions in one place and the compounding interest effect will be the same. However the benefit for me personally is having them all in one place and knowing I have a say in where they are invested. No matter what you decide as long as you are keeping on top of it and aligning it with your bigger financial goals that’s what counts.
Hope you’ve found this useful, I’d love to know what approach you are taking when it comes to tracking your pensions. If you have any questions do not hesitate to ask!!