Pension Advice

If you are looking for a personal pension scheme, there are a bewildering number of choices available, and a large number of salespersons, advertisements and web sites trying to sell them to you. A salesperson employed by the company will be earning their living by the commission they get from selling to you. Equally, an independent adviser will earn commission.

However, the fact that they earn commission from selling to you does not necessarily mean that you should not invest with them. You can still get good value from a pension scheme. Ask the following questions when choosing a scheme.

What is the basis of the fund growth?

Funds are usually unit linked or with profits. Unit linked means that the premiums you pay buy a certain number of units in a fund or funds provided by the company. Like unit trusts there are different types of funds - typical funds are managed, equity, property, geographical. The prices are quoted in the financial press, and the value of your pension fund at any time is the value of the units multiplied by the number of units you have. This means that the value of your fund can fluctuate.

With profits funds means that the investment profits each year are credited to your account with the company, and you share in the profits of the company as a whole. The profits are added each year by way of annual bonuses. Once given, these bonuses cannot be taken away. The idea is to smooth out the ups and downs of the investment market, so there will not be the sort of fluctuations you get in unit linked policies. Then, when the policy matures, there is also a terminal bonus, which is added to the value of the fund.

What is the charging structure?

Many companies pay commission, and particularly in the case of regular premium policies, there is a large deduction from your fund in the first year or two. It could then take a few years for your fund to recuperate this deduction. This is known as 'front end loading'. In turn, this of course means that you will lose out if you cancel or suspend the policy in the early years.

How flexible is the policy?

Do you want to pay regular premiums, or a single premium? Does your policy give you the opportunity to suspend premiums if necessary? If you are paying regular monthly or yearly premiums, can you add on single premiums at a later date?

What is the death benefit if you die before taking the benefits?

Some policies would refund you the premiums, with or without interest, if you should die before taking the benefits. However, it is usually much better to have a policy which would pay out the value of the fund.