Interactive Investor share how to invest your pension
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There are so many ways that pension savings can go wrong. One slip and you could lose tens of thousands of pounds in a moment, or the whole lot. That’s your retirement destroyed.
It’s vital to keep a close eye on your pension and avoid making rash decisions. Here are just some of the threats out there you need to be aware of today.
The simplest way to throw away pension cash is to lose track of one or two company or personal pots through inattention.
People lose track of old pensions when they move job, or move house without failing to tell providers their new address.
More than 1.6 million pension pots have gone astray, with an average value of £13,000 each. If you’ve lost track of any pensions, start tracing them now.
Another obvious way of losing your pension pot is to be swindled by a pension fraudster. They relentlessly target older savers with get-rich-quick schemes but instead of getting wealthy, their victims become poorer overnight.
Much, much poorer.
If you are contacted by anybody out of the blue asking you to transfer your entire pension, the alarm bells should start ringing. The same applies to dodgy emails and texts.
Put the phone down, or delete that message. Otherwise your pension could be gone in 60 seconds.
Sadly, outright scammers are not the only people looking to benefit from your savings pot. Reputable companies like to skim off as much as they can for themselves.
It is worth digging out your various pension plans to see how much you are paying to the company that runs it on your behalf.
A pension company that charged somebody with a £100,000 pot 0.7 percent a year would take an extra £500 in fees every year, compared to one that charged just 0.2 percent.
Over 15 years, the difference would roll up to £15,979, assuming that pension grew at six percent a year.
So check what your pension company is charging, and consider moving if it is too high.
Yet switching pension company is also fraught with danger.
Many people consolidate their various pension pots with one provider, in a bit to make them easier to manage and reduce charges.
That can make sense, but once again, there is a pitfall. In doing so, they risk sacrificing hugely valuable benefits on their former scheme, like a guaranteed annuity rate paying them 12 percent income in retirement.
These are unavailable today, but were commonplace on older company and personal pensions sold in the 1980s and 1990s.
As were other safeguarded benefits such as with-profit bonuses, fixed retirement age, death-in-service benefits or extra tax-free cash on top of the standard 25 percent everyone gets.
They could be worth tens or even hundreds of thousands of pounds, yet you could lose them for good if you transfer out
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It is now obligatory to take independent financial advice on pension switches and transfers, where the benefits are worth more than £30,000.
Yet most people are highly reluctant to pay for advice, and don’t do it.
Financial advice can seem expensive and the industry has also been prone to ripping off customers, although repeated regulatory crackdowns have helped on that front.
Make sure any advice you take is from somebody regulated by the Financial Conduct Authority.
Alternatively, the over 50s can get free, government-funded guidance from Pension Wise.
This cannot recommend products but can alert you to some of the pitfalls. There are so many threats, it’s incredible but any of us make it to retirement with our money intact. Too many don’t.
People say pensions are boring and complicated, and they’re right. They are also your financial lifeline in retirement, so pay close attention. Otherwise you might regret it.
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