Are you ready for October 1st?

I: Glen Thompsett, interviewer
H: Hannah Edwards

I: Hello and welcome to the Personal Finance Show brought to you by Killik & Co, I'm Glen Thompsett.  Now if I asked you right now how much you have in your wallet, well would you be able to tell me?  You'd probably have a good idea wouldn't you, to the nearest fiver at least, and do you know how much is actually in your bank account, give or take £50?  Well you're not alone, a survey just released says we're pretty much on top of our day-to-day finances, but for those of you with pensions, I bet very few of you can tell me what is in that particular account.  Well you're not alone, the survey also reveals that 6 in 10 don't know how much their fund is actually worth.  Half of us never check on the status of our pension, and 78% of us admit to having no plan with our pension whatsoever, but does it all matter?  How much affect can of course we have on our pensions by taking more interest in it?  Well from today, 1^st October a change in the law will affect 8 million of us who do have a personal pension, and to explain why October is such an important date and what you can do about your pension, I'm joined by Hannah Edwards.  Hannah, welcome, nice to see you.  So October, a change in the law.  What does it mean to us Hannah?

H: Well today marks a significant change in the pension legislation.  Those 8 million of us who may have contracted out of the State second pension or S2P, or SERPS as it was also formally known, you've now got significantly more investment options, and ultimately more investment freedom on where you can put those protected rights monies or contracted out plans, either is how they're generally known

I: People are very cautious about what to do with their money at the moment, you know what with the current economic climate.  Is the pension the right way to go, do you think?

H: Yes - I mean Glen that's very, very topical at the moment. I'm being asked that all the time.  Given the uncertainty, given the volatility in markets, should we be moving our pensions around, and I think what I would contribute there is there are so many people who have pension funds that they may have chosen 5, 10, 20 years ago that they haven't actually been monitoring as you've said earlier, 5 in 10 of us don't monitor the progress of our pensions, and indeed they may therefore have some significantly equity-based portfolios, which given the current climate and given the current market, maybe we should be sitting that little bit more in cash.  Maybe we should be considering certain government-backed securities such as gilts, and of course today marks the change when we can move those monies around and actually take advantage of this added investment freedom

I: Ok.  You say monitoring your investments, monitoring your pensions, I mean I very often get letters through companies I used to work with many years ago, still assuming I'm paying into a pension fund - should you ignore those?  What should you do with those exactly?

H: Well the thing is Glen, apathy is the absolute worst thing that you could be doing.  I'm sure, like you, you get these pieces of paper once a year, you probably have a quick look at them, put them to one side.  Well often there's a huge opportunity there to both review those arrangements and maybe think about consolidating them, because it's a lot easier to manage and understand one piece of paper, with one set of all your pension arrangements documented, to having a whole dozen of them scattered around, and that's really something that we're banging the drum on.  Take advice. Take control, and ultimately review those monies, both the protected rights monies that we've been talking about today, but even your non-protected rights funds also

I: Protected rights, I mean a lot of people are confused by that phrase.  Explain a bit more about protected rights

H: Yes.  There is a little bit of jargon still that floats around, and the way to see it is; everybody has entitlement to a basic layer of state pension.  It's about £90 a week for single people, £125 a week for us married folk.  Well that's not really going to be enough to see those of us drinking our G&Ts in retirement.  So if you chose to contract out of the state second pension, there's this additional tier of money which is known as contracted out, or protected rights monies, and it's those monies that we're talking about today, and it's those monies that are tied up in 8 million plans, and it's this 100 billion worth of assets that can be moved as of today

I: Frightening number of figures there you put into that Hannah!

H: It is, it is and again that's somewhat ball park.  It's estimated between 70-100 billion, but either way, it's not small change Glen is it?

I: Ok.  It's not at all.  Ok, lots of questions coming in, thanks for getting in touch with us.  Question here from Thomas Folder for you Hannah.  He says "I recall contracting out a good decade ago and frankly have no idea what happened since.  I've moved a couple of times, so how do I find out where I stand now?"

H: Well Thomas is certainly not alone in that, many people come and see me and say ok I know I've got 6 plans, I can remember 4 of them, the other 2 I really don't have the foggiest.  You've got a few options.  There is a dedicated helpline that's been set up by HMRC for people who think they contracted out, but they don't know where the monies currently lie.  But otherwise it might be a question of Thomas having a look round for maybe some ex / old valuations, old statements, and as soon as he's got a policy number he can then either hand that onto an advisor, which naturally is probably the right path for him to be going down, or he could contact them direct and say ok, can I have an up-to-date valuation and of course all providers have to actually segregate what part is contracted out and what part is standard, as it's known, non-protected rights

I: What if you're one of these people that doesn't keep a record of all their previous pensions and paperwork and the paperwork has got lost in maybe a move of house or whatever, and you haven't got a clue what you've got, where it is?  What's the best way of finding that out?

H: Yes, again it's an absolute minefield and often it's that first part of the jigsaw that takes the most amount of time.  I've had clients come in to see me with mobile suitcases full of old pieces of paper, and quite frankly they do not know where to start.  But that really is the first point of contact is have a look, and try to find sort of policy numbers.  As soon as you've got that we can then take it from there. 

I: Ok, one here from J Abram, says "is this the right time for the government to let people gamble their pensions on a jittery stock market?"  A good question J Abrams, thanks for getting in touch.  What's the answer to that one?

H: Yes, a very colourful question Jane - well no one's forcing you to invest protected rights monies in equities.  You could decide to take your money that's currently in equity-based insurance funds, with the Scottish Widows, with the Standard Life, with the Norwich Unions and you could move those into something known as  SIPP, a self-invested pension plan, and Jane, to quote her, could sit in cash, she could sit in gilts, so she doesn't have to move it into the jittery stock market, if that's not right for her.  With more of a broking hat on what I would say though Glen is that long term, equities will still out perform any other asset class.  And added on to that, every 15 years the value of money roughly halves in real value, so obviously if Jane is wanting to retire, in the South of France in 3 years, then granted she probably shouldn't be too equity focused, but if Jane's in her mid 20s or early 30s, has a long time horizon, then having some exposure to equities is something that she should be pursuing. 

I: Ok, good answer.  David Swansea I think here, thanks for getting in touch David, says "is it worth just putting money into a savings account rather than creating a pension?"  I guess a lot of people think that putting money into a house, buying a property is a better investment than pensions these days as well.  Or was.

H: Well historically, for the last 5 years clients have always said to me my property is my pension.  People have generally prioritised the buy-to-let, buy a holiday home, perhaps over-funding for pensions.  And I think sadly the tide for that has now turned, as we all know what's going on with the doldrums of the UK property market.  Thinking about whether one should put money in a savings account or whether they should park it for pensions, well what are you getting in a pension over a savings account?  Well you're getting tax relief on the way in, so if you're a high rate tax payer, 40p in the pound relief, basic rate tax payer, 20p in the pound relief.  If you have money in the bank, that's being tax-deducted at source, so 20% at source, and then if you park money in pensions you're also getting tax-free growth in the interim, so without meaning to bang the drum for tax efficiency too much, really a pension is a no-brainer.  What I would say of course is you're tying your capital up until the age of 55 and for many people that's still not the most attractive way of going

I: Ok.  Jane Williams has been in touch, Jane thanks for getting in touch, she says "hello, I'm 55, have a personal pension and contracted out of SERPS.  Where can I go to get advice about more exactly what this change actually means for me?"

H: Ok.  Well certainly our website which is killik.com, we do have a free guide on just that so we have always recognised that protected rights very much does need a little bit of demystifying.  There is quite a lot of terminology, some people don't know if they have been contracted out, so I would probably advise Jane to do just that.  Go on to our website, there is a free guide, you can download it, you can ask for it to be sent to you by post if that would be preferable.  That would be a good starting point

I: Ok

H: I think the other thing to say to Jane is if she doesn't already have an advisor, now is the time to try to strike that close relationship, because at 55, this is when pension advice and pension planning becomes serious business. If she's a little bit cynical then there's nothing to stop Jane from shopping around and maybe even beauty parading some advisors

I: Surprising the number of people that leave a pension so late isn't it, they don't get on the pension bandwagon in their 20s or 30s, they think oh you know, retirement's a long, long way away.  They just don't bother do they?

H: They don't Glen, and I think those statistics that you've revealed right at the beginning, half of us don't monitor the progress of our pension.  6 in 10 of us don't even know what our pension's worth.  That in itself speaks volume.  It goes to show just how unsexy pensions seem to be for people.  What I would say for those of us who are perhaps approaching retirement - don't be faint-hearted because if you have taken a pension holiday, so if you've not contributed into a pension, you can catch up quite easily.  A Day did do some very good things, and that was the pension simplification that came in on the 6^th April '06.  And you can now contribute 100% of your earnings up to an annual allowance of £235,000 so those of us who are lucky enough to put 235,000 away into a pension, you can see there's some real scope for funding now

I: That's a nice figure isn't it, you've just mentioned

H: Is that your bonus this year Glen?

I: If only it was Hannah, if only it was.  What is the right product for me though?  A lot of companies, they have their own personal pension scheme, they pay half you pay half, but there are so many products out there on the marketplace now - what is the right one for a certain individual, how do you know what to go for?

H: Every individual and every investor has different requirements, so you know the first thing is really sit down with either an advisor or on your own and establish a plan of what you might be looking for.  But what I would say is that although SIPPS certainly aren't the right vehicle for everyone, what you should be looking for is a vehicle that's relatively transparent, that's got good investment options, and is very flexible, and indeed if you consider something like a self invested personal pension, that is inherently more portable than insurance company plans.  Comparing one insurance personal pension from another is quite opaque, it is quite ambiguous, but again an advisor can look at the underlying performance, look at the charges, and importantly look at any penalties on potentially transferring those away, so in answer to your question I would say there isn't really a one size fits all, as indeed where is there in life that, but certainly consider looking at the low cost SIPPS because SIPPS have very much come down in cost nowadays

I: Right.  Another question here from Anne Gillen, the questions coming in thick and fast for you now Hannah - "I've just taken up a pension scheme with my new company, so I'm pretty new to this. Do the new rules mean I can own stocks and shares?"

H: If you hold protected rights monies yes you can transfer them into a SIPP that I've just been talking about, and you can buy listed equities of direct equities with those funds.  Did the lady who sent the question in, did she say she's just joined a new company?

I: Just joined a new company pension scheme so she's pretty new to the whole thing, yes

H: Ok, right, so where she might not be able to have as much investment choice, if you've joined what's known as a contracted out defined benefit schemes, so one of the lucky ones, if she was lucky enough to be part of a final salary scheme, or if it's a contracted out money purchase scheme, then sometimes, in fact 99% of the time, you can't invest in stocks and shares, it's really more in the personal pension arena that you've got those investment options and of course what I would say is that 9 times out of 10 with occupational schemes that are contracted out, the benefits there are huge so you shouldn't necessarily take the transfer value and move the monies which is another option for her, so I would say be cautious there and don't be too distracted by the fact that she could be moving them

I: Ok.  A lot of people  must be still putting money under their mattresses, I mean the sale - we mentioned this before the program today, the sale of mattresses in the current economic climate must have gone up hugely, big thick mattresses to put your money under

H: Yes well,  I mean the last 6-12 months we've had more and more clients sitting in cash and indeed cash has been quite an attractive arena to be in.  I've mentioned already that equities long term are still very advantageous but what I would say as a bit of a short term tip, is think about looking at government backed securities, so think of looking at gilts. This week we've been buying lots of Norwegian government bonds just as an example so think outside the box. One doesn't necessarily need to just sit in the most attractive deposit cash account, because their nervous about markets.  Take advice, it's really all about adding value, and as a firm that's certainly something that we've always tried to do

I: Once again - where is a good place to go for that advice Hannah?

H: Well again going back to our website, killik.com - we are very much an advisory based brokerage, if a client is looking to come in and have a chat, if they're based overseas, if they're in Scotland, they can always call us and we can do everything over the phone.  Indeed if you want to shop around then there'll be many other advisory brokers out there, but certainly taking advice is the right route in this certain - in this uncertain time shall I say

I: Ok.  Helen Kipper has written to us, emailed through, she says "if I understand it rightly we can invest in property or the markets.  This may have seemed like a good idea when the law was drafted, but is it a good idea in the current climate?"  Coming back to the current climate again which is of course a hot potato at the moment

H: It actually now comes down to asset allocation, so we're veering slightly off the subject of pensions and looking at investment strategy per say Glen.  Now the advantage about commercial property, whether it's currently been hammered or not, commercial property moves in a slightly different pattern to mainline equities, so having it there in a person's portfolio for the long term, as a good way of diversifying your portfolio, is still a tick in the box.  What I wouldn't say is put all your eggs in one basket, so commercial property, there are some bargains out there, the - it's still got more to go, but consider it as a long term hold if you've got, let's say 20 / 30 years as an investment time horizon

I: Ok.  Another question from Steve Brown just popped in here.  "I'm 28, if I have no company pension scheme and none of my own, will I be due anything from the government come my retirement age?" Is he due any money?  Will the government just hand out cash to him?  Lucky man!

H: Is he hoping for a sort of world cruise at the age of 60?  So he's wanting to know, does he qualify for anything extra from the government because he's not in a company pension scheme

I: Yes

H: Well sadly that would be lovely if I could say yes and reassure him, but at present he will only be entitled to his basic state entitlement.  There will also be a second flat rate which is coming out in 2012, but really he needs to start contributing for pensions personally.  There's also some changes coming in a few years' time which will almost dictate that companies do need to start contributing.  I believe it's 3% into a pension from 2012, and then he will himself have to contribute at least another 1% so the government are taking action but that's certainly not enough

I: Ok.  Rachel Gifford, thanks for getting in touch with us Rachel, she says "I'm, 25, don't have a pension, so what's the best option for me?  I'm concerned about running out of money when I get older."  So again you know should I start that pension when I'm young.

H: Well Rachel's in a very lucky position because if you consider two things - compound interest means that if you put in £100 in year 2 if you're getting 5% it's worth £105, and in year 3 you've got 5% interest if that's the rate on £105 and it magnifies and it multiplies up.  Now that's far easier magnified the longer that you have to retirement, so if it's affordable for Rachel then there's nothing to stop her putting as little as £25 a month into a pension which is the stakeholder minimum.  Similarly when someone is in their mid 20s, it - I would be asking Rachel if she came to see me, are you a homeowner?  Do you have any outstanding liabilities?  These are basic financial planning needs that she needs to potentially address first

I: Ok

H: She might want to consider ISAs, locking away - tax-free growth but she can access the capital

I: If she wants to

H: So again it would be probably a question of Rachel calling an advisor such as ourselves and we can give her some free advice

I: Ok well sadly time has got the better of us again today I'm afraid, thanks for your company.  Before you do disappear though Hannah, with the change in the law from today, 1^st October, 3 top tips from you to people who are watching today?

H: Well really summarising what - a few of the things that we've touched on Glen.  Firstly the most important thing is review your existing arrangements, both those protected rights, and the non-protected rights.  Number 2, establish a clear plan of what you're wanting to achieve. And number 3, this is what I would urge anyone whose tuning in, take control, because if you, if you're apathetic then you're really going to miss the wind

I: Ok well we've tried to cover a lot of ground in the last 20 minutes or so. Thank you for all your questions.  Now Hannah has tried to answer as many as she can, but if you want to know more then do go to the website that she's mentioned a couple of times on the program today - that's killik.com - KILLIK.COM - my thanks as always to Hannah Edwards for her time and thank you for joining us, until we see you again, goodbye