What Dangers Are Hiding In Your Pension?

What Dangers Are Hiding In Your Pension?
Kuda Huraa Maldives by Julian Cohen. Why?

Many pension savers are currently getting quite a shock

If you are one of the many people saving for retirement safe in the knowledge that your pension will maintain your living standards in retirement, it may be time to think again.

A growing number of people receiving their annual pension statement will find that on closer examination, half of its value has been lost. There is a reason for this that neither your pension provider or the government is telling you, yet it is no secret.

The number of people on the receiving end of this hidden pension danger now represents one in five of the UKs pension age population. This hidden danger is what the media is calling 'pension poverty'.

Now you could be forgiven for thinking that living in the safety of the world's 7th largest economy would afford you a decent standard of living.  Think again!

21.4 per cent of older British people were classed as being at risk of poverty in 2010. This was 'significantly higher' than the EU average of 15.9 per cent according to the Independent Newspaper.

There are countries that offer much better conditions for older people, for example the former communist states of the Czech Republic (9 per cent at risk) or Slovakia (12 per cent at risk).

If escaping to those countries doesn’t appeal to you, consider this.  Since June 2010 the FTSE 100 on which your pension is based grew by just 1.88 per cent. Subtract the 1-1.5 per cent your pension provider charges you and there is not a lot left.

It gets worse when we look at inflation in this period. June 2010 saw inflation of 5.1 per cent, June 2011 saw 5.2 per cent.

Inflation has fallen recently, but it is still an uncomfortable 3.6 per cent. What will this wealth erosion mean for your pension?

Fortunately there is a way to avoid the hidden dangers of wealth erosion and roller-coaster stockmarkets so that you can avoid joining the one in five pensioners living in poverty.

That solution is a Self-Invested Personal Pension, or SIPP for short.

A SIPP provides the following benefits:

  • It can provide a safe haven for your money.
  • You still receive all the tax benefits associated with the traditional pension schemes.
  • It gives you control of your retirement planning.
  • You will not be reliant or dependent on fund managers and the movements of stock markets unless you choose to be.
  • You can choose to invest in a whole range of alternative investments, some of which may offer guaranteed returns.
  • You can invest in residential and commercial property, subject to certain criteria.
  • You can take a tax free lump sum at 55 rather than waiting until you are 65.

So there you have it.  Don't leave it to chance.  Take control and consider moving your money to a SIPP.

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AJ Bell Is Often The Best Value SIPP For Stockmarket Assets

That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

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