We’re now deep into February, so I’ll finish off my New Year’s tips with a round-up of all the areas of financial planning.
:: Pensions - go deep into that cupboard and take out that dusty old boring pension and make sure it’s fit for purpose. It won’t be long before you need it. There are a few obvious things to look at: charges, performance of the fund, and how the pension’s rules are set up.
:: Rules - some older style pensions have peculiar rules around death benefits which you should check. On some, the death benefit is just the return of premiums without the growth of the fund. This could be draconian on your surviving family, with all the growth of pension premiums lost completely.
Your pension will also have an expression of wishes for where the fund will go on death. Be sure that is up to date, as many have left it as it was when it was set up.
:: Performance - the difference between the best performing pension fund and the worst is alarming, but even if you had an average fund that would be well above the poorest funds, many of which are household names. In a recent column I showed that £100,000 invested into the worst pension fund ‘grew’ to just over £95,000, whereas the best grew to over a million. Of course, there is a large gap in between those two that would be more comfortable.
:: Charges - If you are dealing with an independent financial adviser (IFA), long gone are the days of the up-front six per cent charges and the ongoing one per cent product charges.
While charges can’t be looked at in isolation to performance, and a cynic knows the cost of everything and the value of nothing, shaving off unnecessary charges can make a big difference.
Just a 0.2 per cent saving per year over 20 years on the above example of £100,000 would mean over £14,500 extra back to you. Remember, the higher the growth, the higher the compound impact. Ask your IFA for a full pension review to include the above and how your pension is matching your needs.
If you have any protection policies, ask for their costs and suitability to be reviewed. When we push a quote through the system to calculate the cost of all insurance providers, the difference is colossal.
Forgetting all the lower non-competitive companies, the gap between number one and nine on the list was nearly 40 per cent, so in this instance, the family could have been insured for 40 per cent more or saved 40 per cent off the premium. So, ask your IFA for a quote comparison.
Also, check if the death benefits have been written into trust. If a policy is written into trust (which is a simple document) the death benefits do not go into lengthy probate and instead go direct to the person you want them to go to.
I shouldn’t pass this without mentioning your will of course. I know it’s easy to put off because there are some strong decisions to make in there like who will look after the children if you both passed away, who gets what, (and how they will be offended) but not making a will really isn’t an option. If you die without a Will, someone else (government policy) decides who receives what and it’s a lengthy admin process and it’s expensive.
If you have made a will, your beneficiaries could agree afterwards as to how they might like to alter that will, to suit the family position at the time. Knowing this is an option can help you from ‘perfecting’ which can stop you overthinking and procrastinating now.
- Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like a complimentary review of any of the above with our independent financial advisers, call 028 6863 2692.
