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24 Apr 2013

Consolidation Of Pension Investments Can Improve Performance

When making plans for pension investments people should consider two main things - consolidation and diversification, but they should be carefully evaluated, according to City A.M.

Pensions are certainly the most tax-efficient way to save up for later life and in an attempt to deal with uncertain financial conditions, the number of people who are taking their pension plans in their own hands is growing, the article claimed. Currently, retired people can receive up to £50,000 in annual pension allowance and up to £1.5 million in lifetime pension allowance, but these are set to decrease to £40,000 and £1.25 million respectively in 2014/2015.

Overall, the consolidation of pensions could improve investment performance and result in higher pension incomes. It can also make the management of pension pots easier and reduce administrative charges. Several big pension providers offer lower charges to investors with bigger pension pots. However, it is important that investors carefully consider their moves because there are penalties for transferring a pension and they may even lose certain benefits and features, so researching is essential, City A.M. commented.

It is important to take into account the overall cost of the investment. For example, management charges for stakeholder schemes have a cap of 1.5% for the first ten years, which is reduced to 1% after that. By contrast, Sipps have many one-off charges and fees can add up to unpredicted levels. Experts advise that pensions investments are reviewed on an annual basis to make sure that they are on track with the goals set.

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