I often use cars as an analogy when I talk about pensions as people seem to be able to understand the similarities. It also helps to explain WHY people need to seek advice.
Why pensions are like cars
A car is a vehicle where you journey from A to B. A pension is a container within which you accumulate resources to help fund your retirement. A journey from work to retirement.
There are two main fuel types: diesel and petrol. There are two main pension types: defined benefit and money purchase.
There are dozens of different manufacturers. There are dozens of different pension providers (like Standard Life, Scottish Widows, AXA, Aviva, etc) and thousands of employers with different employer sponsored pension schemes.
There are hundreds of different models from which to choose. There are many variations of pension schemes (Final Salary, Career Average, Stakeholder, Comps, Cimps, Hybrid, Cash Balance, Personal Pension, Sipp, etc).
There are thousands of choices to be made (engine size, saloon, estate, colour, CD, sunroof). There are many options available to different pension types (monthly contribution, annual contribution, single, regular, irregular, fund choices, top-ups, waiver, transfer, risk, dependants, children, ill health, death, lump sum, etc.).
Throughout your journey you pay attention to many factors such as roadsigns, traffic lights, roadworks and diversions. From time to time legislation which affects retirement plannning changes (e.g. state pension age is increasing) and it is prudent to keep abreast of changes and how they will affect you.
You are usually aware of whether or not there is enough fuel to get you to your destination. You should review your retirement provisions regularly to check and see whether there will be sufficient to meet your expectations.
You maintain your car. You should maintain your pension.
Where would you go for a service? From whom should you seek advice?
If you owned and drive a Rolls Royce (for the sake of this example), would you go to your local (non specialist) garage to have it serviced? If you drive a 'normal' car, would you go to a local Rolls Royce dealer to have your car serviced? There are many different areas of advice available from advisers. If you’re seeking pensions advice, seek out an IFA that specialises in pensions and retirement planning.
When you arrive at your destination you don't just abandon your car. You take out the valuables, choose your parking position, turn off the radio and lights, secure the sunroof and lock the doors. When you get to your planned retirement age, you shouldn't simply take the pension benefits that you're offered initially. You should seek specialist advice and consider the numerous options available to you (impaired, enhanced annuities, drawdown, tax free cash, pension increases, guarantees. etc).
