Let’s talk pensions: Why it’s high time for a review

September 5th 2023

Rebecca Goater, Network director and financial adviser

For most of us, retirement seems very far away, so it’s understandable that many leave their pensions with the assumption they’re doing what they need to.

While I fully understand the reasons for neglecting them - my own personal to do list is also often ignored in favour of the numerous urgent demands from children and work, and the general juggle of life - pensions are something that should be prioritised and not ignored.

Up until recently, retirement ages were viewed as a fixed date, often 60 or 65, with people working towards a specific age their entire working life. This is largely because most companies offered “defined benefit” pensions, which guaranteed an income at a set retirement age. Due to this, people in my parent’s generation and above could set their eyes on a retirement age prize, with a relatively good idea of what they would receive at that date.

This type of pension is now rare due to a complex combination of economic, social, regulatory and policy changes over the past 35 years, which has transformed the pensions landscape entirely. Now, most pensions are based upon a defined contribution, which is built up and invested over time to provide a pot of money that can be accessed at retirement.

The difference is that there are now many factors that will impact the size of this pot at retirement. This includes investment performance, interest rates, pension rules, and selected age at retirement (to name a few).

This means that when someone can retire is a moving feast, and financial advice and planning can be the key to enabling and affording retirement. Regular conversations prior to retirement can help to ensure that you’re on the right path.

Many occupational pensions are invested with a “lifestyling” approach. This approach is an investment designed to gradually reduce the level of risk in a pension as the member approaches retirement age.  This is generally an automated process done by moving the pension out of “riskier” equity assets, and into “less risky” fixed income assets, such as corporate and Government bonds, as well as cash.

One potential concern with traditional lifestyling is that there’s no human oversight and the changes take place automatically, even if it’s clearly unsuitable to do so at that time. This was particularly concerning in 2022, which was the worst year for bonds since the 1970s (if not longer) as the Central Banks increased interest rates at a very fast pace to try and control inflation.

For some lifestyling models, this will have meant that those members very close to retirement, with the majority of their pension in fixed interest bonds, could have seen an unpleasantly large drop to the pension, just before retiring.

It’s important that even if you do opt for lifestyling, you still periodically review and adjust the investment strategy as personal or economic circumstances change. It’s not intended as a “set it and forget it” approach, but requires oversight (whether with a financial adviser or alone) to ensure it aligns with evolving financial objectives.

The pensions available (in Guernsey) have changed a lot in recent years, and yet, when meeting with clients, we still see pensions that were set up in the 1990s, with investments recommended based upon what was suitable at that time that haven’t been looked at since. Whilst investing within a pension is always intended as a long-term investment, this does not mean that they should be left unmonitored. The world has changed massively and so has the world of investments, and the options available.

A pension review will help assess the competitiveness and suitability of a pension, examine the investments and risk level and help ensure you’re on the right path to be able to afford to retire when you want to.

There’s no time like the present to ensure your financial future is on track. Network Insurance & Financial Planning Limited can offer holistic independent financial advice so if you want to review your existing pensions, or start planning for your retirement, please get in touch at advice@network.gg or call 01481 701400.