Tips on How to Buy a Pension
The new stakeholder pension has removed many of the problems you faced when buying a pension. They’re have low charges and are highly flexible. But you still have to worry about what you are investing in.
The following information may still be worth checking before you start any type of pension
Basic Tips
- If you can join a occupational Pension plan then you should definitely always do so unless there is some very special reason not to do so. The “special reason” is not that you want more money to spend and don’t want a pension. Giving up your occupational pension is very serious – for starters, you lose what your firm pays in.
- Choose your IFA carefully – see Choosing an IFA).
- Beware information overload – see Sales Psychology.
- Don’t impulse buy or make decisions at the wrong time. See Making Decisions.
- But don’t get decision freeze. DO IT NOW but carefully – see The cost of delaying Your pension.
- Don’t believe the hype even from “trustworthy” household names – see a cautionary tale.
- Always shop around.
Pension Buyers Checklist
You could break up the task into the following
- Find an IFA
- Meet and go through your pension shopping list (make notes there and then).
- Your IFA will probably write a follow up “reasons why” letter recommending a particular course of action. Study this. Has it covered what you discussed was possible from your pension shopping checklist? Maybe discuss what’s recommended with a friend / partner etc – if they can stand it.
- Go over any queries with the IFA.
- Agree to do it and “sign up” or start looking elsewhere SOON. (See the cost of delaying your pension).
Pension Shopping List
You should be able to see the following in the key features document that comes with all pensions:
Most importantly: What are the charges? ie What is the IFA’s fees or commission. What are the annual management fees thereafter? Are the charges front-end loaded.
- How flexible is the pension?
- Can you vary the amounts of your contributions without penalty i.e. on a rainy day?
- Can you stop making payments without penalty? If so for how long?
- Is there a waiver of contribution insurance included i.e. your contributions are covered by insurance if you can’t pay owing to ill health etc? If so what are the details? How much does this cost? And do you need it?
- What is the earliest you can retire and on what conditions? If you have a personal pension, this must now be 55.
- What’s the position re switching pension funds. Could you leave the pension providers altogether? Can you have internal and external transfers.
- If it’s not an actual Stakeholder pension is it “stakeholder friendly”?
- Are there any “extra features”.
- Overall is it easy to understand or does it lack transparency? If it does, don’t forget; IT’S NOT THEM THAT COUNTS, IT’S YOU (AND YOUR LOVED ONES).
Making decisions. Some tips:
- Try and divide the task into sections.
- Use a pen and a paper with, for example, two columns: “pros” and “cons”.
- When considering try and be logical and not emotional e.g. don’t go for the well known name because it makes you feel safe but look at the specific terms of the pension they are offering you. Is it really flexible? Etc.
- Give the decision plenty of time. Ideally this should be weeks and not days. Certainly not hours.
- But, then again, don’t leave it too long or keep putting it off. So set yourself a decision date – put it in a diary or program your phone!
- Don’t make decisions when you are tired, stressed or depressed. Never make a decision late at night.
- Always re-assess your decision at least once. Have you really shopped around?
TIP When doing something like this it’s often best to complete it in “one sitting”. You can reassess your decision later. If you stop the task halfway through then you’ll probably have to start right from the beginning again.
Questions to ask your IFA.
- Do you usually deal with someone in my earnings range ? (If IFAs only deal with wealthy individuals, as some do, they may not give you the right attention).
- How long have you been in business for? If it’s a short time, find out why.
- What qualifications do you have? There are now special qualifications in pensions.
- Are you truly independent?
-
Who are you regulated by? It should be the Financial Services Authority.
-
What areas of personal finance do you specialise in? (they might focus on aparticular area eg investments, life insurance, health insurance – ideally you want a pensions expert).
TIP You may find that it’s wise to judge your IFA on how they deal with your questions. Directly? Or do you have difficulty in getting a straight answer.
Any good IFA should come over as straightforward and honest. If they don’t specialise in pensions they should be mature enough to know that recommending a more suitable IFA to you is good business all round.