What happens to your pension if you don't have a financial adviser?

By FMB on 

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Caption: A confusing range of options?

From 1 February 2021, pension companies must offer ‘investment pathways’ to customers who don’t have a financial adviser acting on their behalf. This is an attempt by the financial regulator to make it easier for those approaching retirement to do the right thing.


Why is this necessary?


Since 2015 and the introduction of “Pensions Freedoms” consumers have a lot more choice about how much cash they take out of their pension pot and when. Also the enforced purchase of an annuity (guaranteed income insurance product) at age 75 was removed meaning the money can remain invested and potentially left in a high risk environment when it needs to last a lifetime.


These changes have led to some savers making mistakes that have a devastating impact on what should have been a well planned retirement. A common error is leaving too much invested in cash, meaning that the pot loses its spending value as it gets eroded by inflation.


What is an “investment pathway”?


The INVESTMENT PATHWAY is designed to alleviate some of these problems. So if you want to draw on your private pension or move it to another company over 55’s will be offered a choice.

Customers who choose the investment pathways will be presented with four options and asked to choose the one that most closely matches their retirement goals:


• Option 1: I have no plans to touch my money in the next 5 years.
• Option 2: I plan to use my money to set up a guaranteed income (annuity) within the next 5 years.
• Option 3: I plan to start taking my money as a long-term income within the next 5 years.
• Option 4: I plan to take out all my money within the next 5 years.


The pension company will then funnel your pot into the investment strategy that suits those goals.

However, there are concerns as highlighted by Rachel Rickard Strauss in the Mail on Sunday (January 31st) “…some experts warn the new system could lead to poorer retirements for some and cause financial harm. Others warn that savers could be ripped off by pension providers who put their pots into expensive funds to boost their profits”


The system is definitely designed to avoid the worst pitfalls, but unfortunately it is rather one size fits all. There is no substitute for good financial planning which is designed to achieve the best outcome for each individual.

Although many consumers believe they cannot afford financial advice, when it comes to retirement it can pay for itself.


If you want to know more about investment pathways or need any help planning your retirement, please get in touch. We do not charge for a telephone call or an initial meeting which may be really helpful.

This article is for information only and not to be construed as advice

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The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk

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