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Introduction.

A lot of people are understandably worried about how much their pensions are now worth.

Lots of people over the last two years have seen their pension funds plummet since the beginning of the credit-crunch back in September 2007. Add to that various scandals by supposed mega-stars of the financial industries, whose golden deals and gilt edged stocks actually turned out to be merely ‘fools gold’; and there are an awful lot of people with genuine concerns over their pension situations, especially if they’re approaching retirement soon. Alarmist this isn’t - fact it is, that for many workers their projected pensions have fallen by 25% since 2007. The net result of which is that if in 2007 you were expecting an annual pension of $27,500 at age 65, you can now expect a little above $20,000! So, what can you do to protect or enhance your pension?

The pension fund to annuity fund problem.

Its no use hiding in a hole thinking your pension problems will go away!

Although not everyone’s a big fan of effectively saving money into what is little more than a bank account for 30 or more years, an account that you can’t touch of course during those years, but that is how we all save our pension pots. However, come the day that you retire the vast majority of us don’t just take out that pot of money and blow it on a week-end in ‘Vegas or whatever, but have it converted into an annuity - so that it pays us an annual income on the interest earned off the capital. Simple enough - I’m sure you’ll agree. However, you might just want to check with the company you’re saving your pension pot with as to how long it takes them to convert the pot into an annuity? Regardless of how much you have saved in the pension pot its value as an annuity isn’t determined until all of the paperwork is completed and the money is transferred to the annuity fund. You should be aware that some companies are taking a month or more to complete this transaction; and with annuity rates currently falling by around 10% a year - that could seriously affect annual income you receive. Needless to say the bank or insurance company that your pension fund is with doesn’t suffer by this process. In fact it suits them to take as long as they dare to with the process as meanwhile - they’re earning interest from their investments based on your pension pot! Here’s a simple example of what this could cost you. On a $200,000 pension pot, converted to an annuity you could reasonably expect up to 7.5%, which would be $15,000 a year, that’s $1250 a month. If you lose just ¹/₂% on this your new figures are; $14,00pa and $1167 per month! Finally, just because you’ve been saving your pension fund with company X - it doesn’t mean you have to accept their annuity offer. When you receive their offer do contact specialist pension brokers and insurance companies to see if they can offer you a better annuity for your pension pot.

Should you stay in a company pension scheme?

So what exactly are your pension aspirations?

Two big considerations in answering that question are: how secure/strong is the company and how good a deal is the company pension scheme. Now only you can decide just how strong the company you’re working for is. After all, who’d have thought 10, even 5, years ago that businesses like GM or Lehman Bros. etc would fold. Conversely, simply by looking at private pension plans online you can quickly see just how good a deal the company pension might be. The company versus private question is further complicated by how long you have to retirement, are you likely to switch jobs or indeed are you constantly switching jobs. If the company you’re with is a solid one and you’ve worked for it for years and you’re nearing your retirement; then on balance - you might be well advised to leave your pension where it is. However, if you’ve any doubts about whether or not the company will survive the current economic downturn, or you’re the sort of person that regularly changes jobs - then moving to a private pension plan may well be a better option for you. Having a lot of small pension pots with a lot of companies, especially ones that could go bust’ anytime, it will simply spread your pension too thinly and riskily. You’d be better off contacting a specialist pension fund finance company and seeking their best advice as to how you can reach your pension aspirations.

Some options if your pension is smaller than expected.

Why not consider downsizing and move to a smaller property?

Leaving aside the idea of simply working longer or taking a lump sum and playing poker with it in the hope of improving it; there are two options that many pensioners and soon-to-be pensioners with property are looking into. First of all you can simply downsize the home you’re living in. Many people buy properties when they have a family and, when the family has grown up and left, decide the place is just too big to deal with. After all, what’s the point of being retired if you spend days on end cleaning and fixing rooms that are never used? So, ask yourself the question - are you too old to repaint or young enough to move? Of course you want the space when all the family visit - but you need to think a bit more rationally about the costs you’re incurring running a bigger than you need house-hold or apartment. The solution, sell up and move to some thing smaller, pocketing the difference between sale and purchase values. Of course to really make this worthwhile you need to make several tens of thousands of dollars on the move, and don’t forget to factor in agents fees and moving costs etc. Moving out of what was once a family home can just be too much of a wrench for some folk. So the second option is to look at home equity mortgage loans or reverse mortgages. With these you in effect take out a loan against the value of your home, which if worth say more than $150,000 would make a very tidy addition to your pension. Generally speaking, in return for the loan, you are allowed to live out your days in the property after which it will be owned by the company that arranged the loan.

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