Simon Cosgrove, Specialist Financial Adviser for Wesleyan Financial Services, highlights the importance of checking where your pension is and how it’s performing…
With more and more dentists across the UK increasing or converting to private dentistry, it naturally follows that dentists may increasingly rely on a personal pension to top up or replace their NHS pension.
Those who have been practising in private dentistry for some time may have accrued a significant personal pension. If this is the case, there’s one key question to ask yourself – when was the last time you reviewed its performance?
With a personal pension, you pay a regular monthly amount or lump sum to a pension provider who invests it on your behalf. This means that your pension is subject to investment performance, which is never guaranteed and you may get back less than you invest.
What is pension switching and is it a good idea?
Pension switching is the process of transferring your pension from one provider to another.
Many dentists have personal pensions. They may have been investing in them for years and have thousands, even hundreds of thousands, of pounds invested in them. Dentists that I have spoken to in my time as a Specialist Financial Adviser often have no idea what fund they are invested in, what risk category the fund is, or what the charges associated with the fund are, and this is one of their biggest assets.
For many dentists, after your home, your pension is usually either your second biggest financial asset or maybe even your biggest financial asset. As a result, it's really important to ensure that it's invested in a fund that's performing well, doesn't have extortionate fees, and is in line with your attitude to risk.
However, like most things, just because you can do something doesn't necessarily mean that you should. It's important that pensions are professionally analysed and assessed before any switches take place.
It’s also important to highlight that when talking about pension switching, we’re only talking about personal pensions. The NHS pension is a gold standard scheme which is often the best form of pension saving for dentists and so is best left alone.
The benefit of a potential pension switch is just ensuring that one of your biggest assets is invested and performing as well as possible with a level of risk you are comfortable with.
There are even benefits simply in investigating a potential switch, even if the right thing is to stay where you are, because the worst that can happen is that you know exactly where you're invested, how it's performing, and it's in the right place for your retirement objectives.
Is this something a dentist can sort themselves?
Pensions are complex. Pension switching and, in particular, accessing pensions are heavily regulated areas because there are so many pitfalls that an unsuspecting pension investor could fall foul of.
It’s beneficial that a financial adviser is involved in the process. The analysis for pension switching has to be undertaken by a trained professional because there are so many projections and rules around pensions. You've got to ensure you make the right decision.
Seek advice from specialists
In my experience, it's a really simple process for clients when you have an expert involved. You need to sign a letter of authority that allows an adviser to approach your existing provider and get all the required information from them on your behalf.
This doesn’t mean getting permission to switch the pension, it just allows an adviser to do the investigation.
When I undertake this process, the investigation result comes back on a traffic light basis.
Red means your pension should not be switched. If it comes back amber, it means that there are some reasons to switch and there are some reasons not to. The final decision is made through a conversation with the client looking at the fees, service level, risk, and other factors and weighing against their objectives.
Green means that the pensions should be switched. Perhaps the charges are too expensive for example.
If the decision is that you should switch, it's just a case of completing a short form, which is then sent to the existing provider, and then the pension is switched over.
As I mentioned previously, a pension is often one of the two biggest financial assets that people have. You may need your pension to provide you with funds to maintain your standard of living for what could be 25 years or more in retirement.
There are two key questions to ask – firstly, is your pension performing as well as it could be? Secondly, would you want to risk making an incorrect pension-switching decision by not seeking out specialist advice?
If you’re looking to explore your options around pension switching, you can book a no-obligation financial review with a dental Specialist Financial Adviser by visiting wesleyan.co.uk/lifes-journey or calling 0800 316 3784.
Simon Cosgrove is a Specialist Financial Adviser for Wesleyan Financial Services, working exclusively with dentists their practices and their families to secure their financial futures.
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