How to Get a Pension
How this website can help you get a pension
It’s best to use an IFA
Which Type of Pension
Personal Pension vs Stakeholder
Buying direct is not always best
SUMMARY
Buyers checklist
Pension Shopping List
Making decisions. Some tips
Questions to ask your IFA
How to Get the cheapest Stakeholder pension
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 don’t have a good workplace pension (or you want to top it up) the bottom line is to discuss your needs with an IFA. She or he 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 a bright IFA.
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
Let’s repeat Pensionsorter’s 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).
Taking advice will cost you in one way or another – either via commission or a fee based on time taken to help you. But this could help you avoid costly errors. You should only go for a discount option where any advice will be minimal if not non-existent if you are certain you know what you are doing.
IFAs must, by law, give what’s termed best advice and should be e identify the best pension for you – or in some cases, tell you to do nothing. IFAs have to set out their thinking behind any recommendation in a “reason why” letter..
But always be careful. If things go wrong, your chances of compensation are zero if you bought direct from a pension provider or used the execution only option offered by some advisers.
You could get some compensation from an IFA if the advice is bad. But that does not extend to any investment choices – if your pension pot goes down because markets or fund managers lose money, you have to take that on the chin. Sorry! (See Execution only and Buying direct is not always best).
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.
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). It might be worth contacting more than one IFA – a second opinion is always worthwhile.
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. But don’t forget to factor in the state pension you’ll get.
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. In many cases, they do little but rely on stock and other financial markets performing. But even when results are down to individual fund manager brilliance, the manager may move on so always ask if the same ones are still running the pension fund.
In any event never assume that past performance guarantees future success or is any pointer to future progress…
Unlike football stars or Hollywood celebritis, 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. And they can look good if markets boom.
There are some interesting arguments about how relevant past performance is. One theory is that last year’s flop is this year’s super star. But you can’t rely on this.
Past performance is not all it’s cut out to be and there wre moves, no abandoned, to ban these figures which are 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…
Various publications do surveys on fund performance (including Money Management Magazine and Life Pensions Moneyfacts) see Useful Contacts.
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! Well, they’ll certainly bless you for providing them with extra revenue for no effort.
You get no service, no advice, but pay the same (sometimes more!) So advice is a no-brainer.
Also see A Cautionary tale
Some plans sold 20 or so years ago (often to young people who are still decades away from retirement) were really bad value. Many people paid in for a few years then moved jobs or moved abroad and did nothing more with their plan.
They thought it would just grow over the years – in fact, they were told it would grow over the years.
Wrong!!!
The only thing that grew over the years was the amount the pensions company took in charges.
Imagine, it did nothing for you other than keep your money in a fund. But it still took its fees. And as it took these amounts, there was less left to pay the next fee and so it went on until the policy expired totally worthless.
This was because the charges were front-end loaded – that’s a polite way of saying the seller and the insurance company get their money first and if that means there’s nothing left for you, then tough!!!
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.
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…)
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.
You will get screeds of written stuff which contain all the nasties. But even if you read all the stuff (unlikely) and understand it (even less likely), you’ll have to be really on the ball to tell the insurer where to go!
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.
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.
And one final point. All that clever stuff in the brochures counts for nothing if it all goes wrong. Everything is surrounded by disclaimers and you’ll be told you were an idiot not to understand the small print – even if top lawyers can’t make head or tail of it!
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.
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.
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:
- The Three Golden Rules for buying a pension.
- Our Summary of How to Buy a Pension.
- The Action Checklist to get you going.
- The Pension Shopping List to go over with, with your IFA.
- Making Decisions Some helpful tips.
- Questions to ask your IFA.
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.