“I’m busy earning as a freelancer, but what about all those Pension plans?”

It’s a common freelance problem. You’re hard at work earning money from contracts, but you also know you need to keep an eye out for when you’ll be less busy earning. In this new Financial Management series, Senior Pensions & Retirement Consultant Phil Illingworth will help freelance and contractors navigate the perils of pensions.

If you’re like most people, you’ve accumulated a number of pension plans over the years (both from previous companies and possibly from doing your own thing), but it’s probably been some while since you looked at how these are performing, and importantly, how they are all going to help towards your income in later years when you are no longer freelancing.

Yes? You’re not alone.

There’s such a huge range in fund performance, you need to know what you’re invested in.

This subject is vitally important to most, if not all of us. However, years of negative press and hectic lifestyles has meant that we usually park this for one for another day, month, or even year? Over the coming months, I’d like to take this opportunity to try to dispel much of the misinformation, and actually help you to make the most of the hard earned monies you’ve already saved. Pension savings are for the long term, and so as we all know, just a little improvement early on can make a significant difference when we need it.

Fund performance is key

Firstly some background:

Go back 10, 20, even 30 years, and the companies you worked for then. You will either have been offered a Final Salary pension scheme (one that links years service with final salary), or one whereby the company and yourself contributed to what’s called a Money Purchase scheme (and the monies were invested in various funds, one of which would have been the dreaded “default” fund).

We’ll look at the Final Salary scheme queries you may have in a future post.

Money Purchase Plans

We’re interested in understanding what’s happening with all the monies that have been invested over the years into your “Money Purchase” plans.

Even if you received good advice at the time on which funds to invest your money into, very few funds actually perform consistently well year-on-year. That’s because the economy changes and fund managers don’t always get it right. The other issue is that “With-Profit” funds were flavour of the decade 10+ years ago, but many then suffered with the dot com crash and government intervention, making it now very difficult for many of the “With-Profit” funds to deliver the terminal bonuses they wanted to (or some what promised to).

Zombie Funds

- the walking dead

The result of this is that there are literally billions and billions of pounds of people’s money “festering” in poorly performing (often “default”) funds, and very few people realise this, or appreciate they can easily do something about it.

How do you improve your chances?

You have a choice here. Do you want to do this yourself, or find an appropriately qualified adviser to help you?

You’ d expect me to recommend the latter, as pensions can get a little complex at times and so some expertise can go a long way.

Do your own initial research

In the first instance, if you just want to find out how your funds have been performing relative to their peers, there are some useful (and free) tools available online.

Not all funds are listed, but the following links will get you well on your way:

http://www.trustnet.com/pen/

http://www.ftadviser.com/funds

If you find this in itself a little daunting, you need to speak to your existing adviser (if they specialise in pensions) or ask a friend or colleague if they know of a good pensions adviser.

Using an Adviser

A good adviser will assess your attitude to risk and return, assess the quality and performance of your existing plans and funds, and make recommendations for any changes required. A good adviser will also re-asses the performance and suitability of these funds at least once a year (more often if possible) and re-balance and readjust your pension portfolio accordingly.

Although pension schemes vary in terms of charges and their flexibility (the range of funds available etc), the performance of the underlying funds is often key to long term returns. Reassessing performance and suitability of these funds on a regular basis helps to give your portfolio the best chance.

You might be concerned about this process taking up too much of your time? Many advisers can work remotely these days if required, and should be able to tell you quite quickly (and without obligation) if they can improve your position.

What next?

Make some time to at least check out (or have someone do it for you) the performance of the funds your pension savings are invested in. Don’t keep putting it off!

If you’ve lost track of any of your previous pensions you can try the Pension Tracing Service on 0845 6002 537 or www.thepensionservice.gov.uk/atoz/atozdetailed/pensiontracing.asp

It’s usually when you get to 55+ the panic starts, but it’s those at 45+ that stand to gain the most by doing something now!

GOOD LUCK, and let me know if you have any further queries.

Look out for more Pension and Investment advice from Phil over the coming months. You can subscribe to the RSS feed to receive the latest freelance and contractor news and articles.

photo credits: soylentgreen23 & A Touch of Glass