Retirement Considerations

What is Pension Credit?

Pension credit is formed of two parts that provide some extra money provided to pensioners of the UK provided by the Government to help increase weekly income to the minimum amount.

Guarantee Credit tops up your weekly income if it’s below £167.25 (for single people) or £255.25 (for couples).

Savings Credit is an extra payment for people who saved some money towards their retirement, for example, a pension.


Rules for people who go abroad

When you apply for Pension Credit, you must be living in England, Scotland or Wales.

The Government may pay Pension Credit for up to 4 weeks (1 month) while you’re temporarily away from Great
Britain and may pay for up to 8 weeks if the absence is in connection with a death.

If you leave the UK solely in connection with medical treatment or medically approved
convalescence, the Government may pay Pension Credit for up to 26 weeks (this is dependant on the condition and treatment).

But it should be noted that before you go if you’re going to leave Great Britain for any reason at all, even if you’ll only be away for a short time, you must inform the Department for Work and Pensions. This includes if you go to Northern Ireland,
the Isle of Man or the Channel Islands.


State Pension – what you need to know

In order to claim the basic State Pension you must:

  • a man born before 6 April 1951
  • a woman born before 6 April 1953

If you were born any later then you can apply for the New State Pension instead. For more information on this, please click here.

The most you can currently receive for the basic state pension is £129.20 per week (2019/20), however, this amount will increase by every year by 2.5% (roughly based on average percentage growth on wages and price growth in the UK).


Consolidating Pensions

Most people, during their career, accumulate a number of different pension plans. Keeping your pension savings in a number of different plans may result in lost investment opportunities and unnecessary exposure to risk. However, not all consolidation of pensions will be in your best interests. You should always look carefully into the possible benefits and drawbacks and, if unsure, seek professional financial advice.

Keeping track of your pension portfolio
It’s important to ensure that you get the best out of the contributions you’ve made, and keep track of your pension portfolio to make sure it remains appropriate to your personal circumstances. Consolidating your existing pensions is one way of doing this.

Pension consolidation involves moving, where appropriate, a number of pension plans – potentially from many different pensions’ providers – into one single plan. It is sometimes referred to as ‘pension switching’.

Pension consolidation can be a very valuable exercise, as it can enable you to:

  • Bring all your pension investments into one, easy-to-manage wrapper
  • Identify any underperforming and expensive investments with a view to switching these to more appropriate investments
  • Accurately review your pension provision in order to identify whether you are on track

Why consolidate your pensions?
Traditionally, personal pensions have favoured with-profits funds – low-risk investment funds that pool the policyholders’ premiums. But many of these are now heavily invested in bonds to even out the stock market’s ups and downs, and, unfortunately, this can lead to diluted returns for investors.

It’s vital that you review your existing pensions to assess whether they are still meeting your needs – some with-profits funds may not penalise all investors for withdrawal, so a cost-free exit could be possible.

Focusing on fund performance
Many older plans from pension providers that have been absorbed into other companies have pension funds which are no longer open to new investment, so-called ‘closed funds’. As a result, focusing on fund performance may not be a priority for the fund managers. These old-style pensions often impose higher charges that eat into your money, so it may be advisable to consolidate any investments in these funds into a potentially better performing and cheaper alternative.

Economic and market movements 
It’s also worth taking a close look at any investments you may have in managed funds. Most unit-linked pensions are invested in a single managed fund offered by the pension provider and may not be quite as diverse as their name often implies. These funds are mainly equity-based and do not take economic and market movements into account.

Lack of the latest investment techniques
The lack of alternative or more innovative investment funds, especially within with-profits pensions – and often also a lack of the latest investment techniques – mean that your pension fund and your resulting retirement income could be disadvantaged.

Significant equity exposure
Lifestyling is a concept whereby investment risk within a pension is managed according to the length of time to retirement. ‘Lifestyled’ pensions aim to ensure that, in its early years, the pension benefits from significant equity exposure. Then, as you get closer to retirement, the risk is gradually reduced to prevent stock market fluctuations reducing the value of your pension. Most old plans do not offer lifestyling – so fund volatility will continue right up to the point you retire. This can be a risky strategy and inappropriate for those approaching retirement.