Andy Warhol once said, “They always say time changes things, but you have to change them yourself.”. We are pretty good at this. We regularly change our mobile phones, clothing style, cars, houses and almost everything we own. We do this to renew and refresh our belongings and ensure we’re up-to-date with modern trends and appliances. But what about updating your pension plan?
Personal pension plans have been around for a long time. In the early days, the self-employed mainly used them to provide retirement benefits in addition to the State pension. Some companies also provided Top Hat schemes for senior executives to help recruit and retain the best management available in their sector.
Like everything else in life, pensions have developed and moved on. In the mid-80s, contracting out of the State Earnings Related Pensions Scheme (SERPS) became possible. This signalled an emphasis on personal accrual of retirement funds, replacing State involvement in anything other than the basic pension. The demographic analysis predicted more and more retirees and fewer workers able to sustain themselves in the State system.
Now, nearly 40 years later, the predictions have become a reality, and whilst SERPS were replaced in 2002, Auto-Enrolment and increased opportunities to create our own pension funds have been introduced. Tax benefits are generous, and the modern pension plan has become a sophisticated investment vehicle allowing access to almost unlimited funds and securities. Self-Invested Personal Pensions (SIPPs) are now one of the most popular ways to save for retirement, and even insurance companies, who aren’t necessarily known for being fleet of foot when it comes to willingness to change, offer SIPPs.
Updating your pension plan to a non-resident SIPP
One of the latest innovations provided by the pensions industry is the development of the ‘non-resident’ SIPP, sometimes known as International SIPPs. These are SIPPs designed specifically for non-UK residents and offer access to multi-market and multi-currency investments. Pension benefits can be paid under Flexible Access Drawdown rules and in the currency of choice.
Additionally, non-resident SIPP providers don’t restrict access to information or services, as with some pension providers in the post-Brexit world.
Pension legislation has also changed. It is now easy to transfer from one provider to another and consolidate funds into one easy-to-manage plan. Holders no longer need to stick with an old-fashioned pension plan, perhaps restricted to an ‘Annuity only’ or ‘Capped Drawdown’ benefit payment. When interest rates fell to near zero, these products became unpopular as the income they generated was severely reduced.
Enter ‘Flexible Access Drawdown’ plans, which gave pension plan owners many more options when accessing their fund on retirement. Essentially, you can take however much you need, year on year and change it whenever you want to. This makes retirement planning a much more flexible and efficient exercise, enabling people to manage their tax affairs as efficiently as possible.
While many know how retirement planning works, others have given little thought to updating their pension plan to benefit from a more optimal environment.
Indeed, I regularly encounter people who have lost track of their pensions, partly due to the many ownership changes pension companies have gone through and ‘consolidators’ who have bought and sold insurance companies over the years.
This means many people still have old-fashioned pension plans, which could be changed to fit the modern world.
So, what to do?
The first step is to dig out details of old pension plans and see what you can ascertain regarding their current value, which company they are with, and how benefits can be taken. An experienced adviser can help with updating your pension plan, so it may be best to contact one and have an initial consultation.
When you know what you have, you will be better positioned to decide whether it’s still exactly what you want and if it can be changed.
Pensions may be a dry subject to some, but money isn’t. We are always looking to increase our wealth and financial security. Checking our pensions and retirement plans is essential to modern-day financial planning. State pension provision is strained, and we will all have to be more responsible for our finances.
This makes it all the more important to squeeze the last drop of juice from our pension plans to ensure we’re in the best possible position.
If you want to learn more about updating your pension plan to a non-resident SIPP, please use the form below to contact us.