Pensions just aren't sexy

Loosening the pension rules will bring its own set of problems

Published:  07 April, 2015

When you talk about pensions you enter into the realms of performance and, just as on the subject of engine tuning, each person defends their own choice because they made it. Pensions come in many shapes; managed, unmanaged, high risk, low risk and money purchase, to name just a few of the buzz words and, depending on your needs and wants, all of these serve a purpose.

Because pensions are tax effective, the money-market has developed 'products' that you can buy off the shelf - but you are buying a product. Decide on what you want and how much you can afford. The younger you start the less it costs, or so they say. Pensions are about accumulation; you invest your money into a 'fund' which is then managed, through investment, to increase its value. This is not operated by some flashy computer system - it's about people and how they understand the financial markets - here is the measure, if you hire a cheap Fund Manager, you don't get the growth that you want.

Traditional pension products were riddled with small print and were often restricted or 'anchored' to the company for whom you worked. Portable pensions came about later and this gave the ability to take your pension 'pot' with you. I have spent the last ten years consolidating little dollops of pension together into one or two larger funds. The problem with small pension funds is that they are often levied with a management charge - a set amount which can be disproportionately more than the 'percentage charge' on larger funds - one percent is a great deal less on a £50,000 fund than a £1,000 management charge on a £20,000 fund.

The main change that comes into play on the turn of the financial year, the 5th of April, is that once you had, historically, saved your fund (and paid a fund manager to look after it) your only real opportunity was to buy another pension product, most often an annuity, you then paid a fund manager to look after it - have you ever met a poor Fund Manager? That paid a set amount on a monthly basis - your part of getting value for money was to live long enough to get more out than you put in! This has changed, now you can call down your fund almost with impunity - there are some hoops to jump through, but now you could, for instance, buy a 'buy-to-let' property which may offer capital growth and income without the need to sponsor a fund manager. Please do not think this is your best opportunity, I just give it as an example.

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