Making the case for Pension Consolidation
Various FCA reports over the past couple of years have highlighted clients in inappropriate pension schemes, incurring high investment and product charges, as well as having investment in inappropriate funds based on their current risk profile and capacity for loss.
It's easy to see how likely and probable it is that over time your clients will have acquired several small pension pots, and how these pots might not be the best option for the clients to fulfil their income and financial planning objectives in retirement.
What's more, some schemes are now dormant or inactive, such as old GPPs, personal pensions and closed company schemes, as well as old stakeholder schemes with a 1% charge.
Stats show that, on average, someone has eleven jobs during their working career. This means that many people could conceivably end up with that many pension arrangements by the time they retire.
Given that statistic, it's easy to see how likely and probable it is that over time your clients will have acquired several small pension pots, and how these pots might not be the best option for them to fulfil their income and financial planning objectives in retirement. They may not know or understand what they've got, how much is in each pot and how to access their funds.
Why it's important to consider Pension Consolidation
It therefore may make good sense for individuals to consider consolidating all the pension assets into a single plan – especially when you consider that the benefits available through scheme, both pre and post retirement, may not be as flexible as those now available through Pension Freedom and Choice. For example, a scheme might only offer an annuity on retirement, with no access to Flexible Access Drawdown. It may also only offer a limited range of investment options. Death Benefits should also be an important consideration, as should safeguarded benefits – which should be taken into account before any decision is made to transfer.
Looking through the 'consolidation' lens' and bringing multiple pensions into one, potentially more cost effective in terms of reduced pension and investment charges, can give your clients (and you as their adviser), a clearer view of all their retirement holdings, whilst they are still accumulating pension assets, and then throughout the retirement income planning process.
When it comes to retirement income, it's no longer a binary choice between an annuity purchase or income drawdown. Consolidation gives clients the opportunity to take full advantage of the range of flexible product options available through Pension Freedom and Choice – when and how to access income, and be better positioned to manage the risks of running out of money in retirement.
Alongside the various income options, consolidation also provides flexibility and choice when it comes to selecting investment options. Given that many people consolidating their pension assets could have over 20 years until they want to start taking benefits, investment choice is crucial. Many clients could be in default funds incurring high charges and with a risk profile totally unsuited to the clients' attitude to risk and capacity for loss.
LV= is well placed to help your clients and you
The case for pension consolidation is clear.The process calls for a provider that can offer a solution that is simple and easy to use, with enough flexibility to cater for different life stages, whilst providing growth for your client's retirement funds.
Whether your clients are contributing to a pension now, or if and when they decide they're ready to move into their retirement and want to start taking an income, we can help.
4 great reasons to use LV=
- Low cost high value pension – our pension wrapper has a 5* Moneyfacts rating – and has had for four years, ever since the ratings were first introduced in 2015. We offer a low cost personal pension with a management charge of just 25bps and fund charges starting from just 6bps - so your clients can access a quality pension arrangement from just 31bps.
A streamlined and efficient consolidation process – We have a clear, step by step, pension consolidation process designed to make your life easier. And with a wealth of experience, tools and technical expertise, we can help you deal with different scenarios and make your advice process more straightforward.
Applications can be made online with no client signature required. We use the Origo system to obtain transfer funds, and we'll do all the work and chasing if transfers are coming from schemes that aren't on Origo.
Wide fund choice – starting from just 6bps, we offer a range of investment options. We have a panel of five of the leading passive investment managers – including LGIM, Vanguard and Fidelity, providing access to a range of passive risk rated and risk targeted funds. These include the Vanguard Life Strategy Funds for just 22bps, and the LGIM risk targeted funds for just 24bps.
We also have a range of actively managed funds across all key market segments.
A key part of our investment proposition is our Flexible Guarantee Funds, managed to our mandate by Columbia Threadneedle Investments. These three funds have a built in smoothing mechanism and optional spot guarantee – making them ideal for clients who are seeking an element of capital security and are aiming to smooth out the impact of market fluctuation, both in the period leading up to retirement (when protecting the value of a fund can be crucial) and when they start taking income from their fund to guard against the possibility of sequential risk.
For clients looking for a bespoke investment solution, we have a panel of six DFMs that we have individually negotiated relationships with.
- Flexible retirement options – we offer a range of product and fund choices to support your retirement income planning process. Our personal pension provides a low cost 'entry level' into a single Retirement Account and access to a range of LV= income options. For clients in retirement, or transitioning towards it, we have a fixed term annuity contract and a fully flexible drawdown plan.
If you have any queries, or would like more information about our products and services, call our dedicated Retirement Desk on 08000 850250. Lines are open from 8.30am to 5.30pm, Monday to Friday. Calls will be monitored or recorded for training and audit purposes