Taking control of your pension

This is the first year that it’s become truly possible to take control of your own pension. Up to now, most people with money-purchase (or defined contribution) pensions had to hand over their money to an insurance company and buy an annuity with it. Thankfully, that practice is ended and we get to keep the cash.

What’s stopping a lot of people is simply lack of understanding of what a pension is. In fact, it’s really quite simple: it’s a savings account that you use to build up a sum of money that will eventually provide enough income to support you in your later life. Despite all the changes, it remains a limited access account. Once you put the money in, you can’t take it out again until you’re at least 55. However, when you put the money in, you get a tax rebate so that, for a basic rate tax payer, every £1000 you put in becomes £1250 in the pension. Anything that you withdraw from it is subject to income tax but with an allowance that means that the first 25% you take out is not taxed, whether you take this out as a single large lump sum (as historically people did) or as a series of smaller amounts (in which case 25% of each withdrawal is tax free).

If you’ve had a few jobs over the years, chances are that you’ll have a small pension account for each one. Small pension accounts are generally bad news as the charges, particularly on older accounts, can be rather high. If this sounds like you, it’s best to investigate the possibility of combining the various accounts which will reduce the charges and let you take control of your pension.

Are you up to taking control of it though? The sums involved in pensions can be quite substantial and the sheer size of the sums can put people off managing the money themselves. If you’re comfortable with the amount involved, there are a range of Self-Invested Personal Pensions (SIPPs) around that will let you do that but equally you can choose an investment manager to look after the account for you.

Either way, you need to establish what your objectives are and what your attitude to risk is as that will determine just how the pension account is invested.

As with everything in pensions, the timescale for transfers can be surprisingly long. To move a company pension to a private one (which will normally require you to take professional advice) can take four months or more but even a simple transfer is likely to take a month or two. Mind you, that does have the advantage that it gives you a lot of time to think about how the fund will be invested which is no bad thing.

Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.

So, how should you invest your retirement fund?

Up until last year, the clear answer was with an increasing proportion of bonds as you approached retirement. However, that advice assumed that you would be buying an annuity on retirement therefore the rising proportion of bonds was aimed at stabilising your pension fund as you got closer to the point of purchasing the annuity.

All that changed last March when the chancellor announced that you would no longer be required to buy an annuity and could continue to manage your pension fund as you saw fit.

But, what does that mean in practice? Well, you don’t have the cliff-edge of an annuity purchase therefore you can carry on running the fund as you would have done ten or twenty years earlier. This means, that you can carry on largely in equities and, in principle, should let you have a rising income over the years that you are in retirement. On a related note, since the fund will go to your dependents, there isn’t the push to spend it all as there would otherwise have been and, of course, you wouldn’t want to run out of money either.

What you can do depends a lot on your circumstances and temperament. For example, if you’ve got the average pension fund of around £30,000 then you’re quite limited. That’s not really enough to allow you to take many risks and probably only really enough to act as a top-up to your old age pension which, in practical terms, means that you might well be best with an annuity. Move up to £300,000 (which a surprisingly large number of people will have) and it’s a whole different ball-game. For a start, that’s well above the minimum that a range of investment managers will take you on and it’s enough to allow you to move more into equities i.e. to take on a bit of risk.

What’s key though is to know what your attitude to investment risk is. Could you sleep at night if your pension fund dropped 30% for instance? Could you convince yourself that it wouldn’t matter if it did? (and it doesn’t – it’s the income that matters on a pension fund, not the capital value)


Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.

Accepted, but can I do the masters?

I got a surprising email from Queen’s last week to say that I’d an unconditional offer for the masters course.

I say surprising, as I was still waiting for the Open University to produce the references which, supposedly, were essential. Moreover, I hadn’t weighed in with an official transcript for any of my degrees which I also thought was essential.

The only problem with this is that unless the offer of redundancy comes through for the first wave, I won’t be able to do it.


Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.

Social events at Campbell College

Campbell runs quite a series of social events at the college aimed at the parents and former pupils.

They’ve a series of parent/teacher prayer meetings through the year in addition to various family services in the Great Hall. I’d sort-of thought of it as just a school hall but it appears that it counts as a church. In the last family service they had a christening and it seems that they do weddings as well.

Courtesy of the large choir and orchestra, they stage a number of productions during the year. You might be thinking “oh, school production” but in fact the musical event last week was thoroughly professional. In keeping with the spirit of the school, everything was handled by the pupils. Quite surprising to me were the two comperes introducing the show. To be honest, I’d thought that these were the guys who’d opted out of performing and then about 10 minutes into the show they stepped to the side to be the leads in one of a series of numbers that cropped up in the course of the show.

An interesting contrast to the primary school is the approach to child protection. As they say from the outset, they want to celebrate every success of the children and therefore photos of them will appear in publications, online and on the TV. Moreover, there was no stigma about singling out each performer during the show (and quite a number of them were really fantastic).

We’ve not made it through the whole year yet but the above is just a sampler of what’s on offer and doesn’t include such things as the excellent Halloween ball or the upcoming theatre production.

Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.

Parent-teacher consultation at Campbell

We had our first parent-teacher consultation with James’ teachers a couple of weeks back.

The first encounter with it was a few weeks earlier when he was issued with a timetable which he’d to have each of his teachers fill in a time between 3.45 and 6pm on the day of the consultation. Each slot was five minutes long and with over a dozen teachers, it sounded like a recipe for chaos.

In the end he missed out several of the teachers but we managed to pick up most of those he’d missed in the gaps that we had between the others. That meant for a very tiring afternoon as the first slot was just after 4pm and we were there right up t0 6pm with virtually no gaps to recuperate between teachers.

I say “teachers” but in reality they operate more like tutors since the classes are so small (just 17 in his) so it’s fairly easy for the teachers to pay individual attention to each pupil in their classes. They were pretty much all very upbeat and positive and the only area where he needs to up the ante is in French (which he should be quite good at). We came away really impressed at how much effort each teachers puts into each of the pupils and it’s confirmed our belief a year ago that it’s the right school for James. So far, he seems to be doing well in the subjects that really matter.

We thought we’d another couple of years to go before we needed to think about subject choices but it turns out that the first decision point is at the end of this year when he’s to choose between Spanish and German as his second language. At the moment, the front runner seems to be Spanish but that could change.

Copyright © 2004-2014 by Foreign Perspectives. All rights reserved.