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In the last 20 years, pension products have changed significantly. One of the most visible changes during that period has been the reduction in charges in modern pensions. Our team can find out exactly what fees you are currently paying on your UK pension, and let you know if there is a more competitive alternative on the market.
The difference between a charging structure of 1.5% and 2.5% may sound small, but longer-term, the compounding effect of an extra 1% can be massive.
4% annualised growth over 20 years will see the pot grow to £438,224.
5% annualised growth over 20 years will see the pot grow to £530,659.
It’s important you know about your pension’s death benefits. There are massive differences in death benefits between schemes. If there is a chance someone will be financially dependent on your pension after you pass away, make sure you know exactly what they can expect.
When you pass away your spouse may be eligible to receive up to 50% of your pension. Depending on the age gap between you and your spouse they may also receive nothing.
We can help you find out this important information – book a consultation.
Depending on where you are in the world, you may be stung with taxes when you draw down from your pension. Alternatively, people living in nations with no income tax like the U.A.E which have Double Taxation Agreements with the UK, may be able to draw down their entire pension tax-free.
Members of defined benefit pension schemes receive a set income in retirement. This income is determined using a calculation which considers their final salary, their years of service and the scheme’s accrual rate. The scheme has absolute control over the investment decisions and risks required to fulfil the promise.
Members of defined contributions schemes have more investment flexibility but members are often constrained by the funds offered within their scheme.
Let’s look at what a 4% difference in fund performance can achieve.
4% annualised growth (after charges) over 20 years = £438,224
8% annualised growth (after charges) over 20 years = £932,191
Holders of defined benefit pensions may have the option to swap their ongoing pension benefits for a one-off lump sum. This is known as the cash-equivalent transfer value (CETV) and is calculated from years worked, final salary and the scheme’s accrual rate. The CETV offered will fluctuate depending on things such as life expectancy, RPI and CPI, interest rates and gilt yields.
Currently, CETV’s are historically high meaning it is an opportune time to transfer your pension into a SIPP.
People with a defined benefit annual income of £45,000 may well be offered a transfer value of around £1,125,000.