Most people do not have a private pension plan. Some people, however, have too many, collecting plans as they move from job to job. Keeping on top of all these schemes is essential.

Evaluate your pensions
The key to taking control of your pensions and retirement planning is to find out what types of pensions you have and update the data annually. Get this right and you will have peace of mind and the ability to plan your way to a fruitful retirement.

So why do few people actually evaluate their pensions to find out what they are worth? In my experience most people barely read the statement; giving up because they are overwhelmed with gobbledegook, number dyslexia, words that might as well be written in Chinese and finding that each statement is set out in a different way!

To make your life and future saving really make a difference, you need a deeper understanding of what the statements say. To get to that point you need to understand the different pensions that already exist in your financial collection.

This sounds like a statement of the obvious but you would be amazed how many people cannot quickly sum up their main pensions, nor understand which contain the most value. Without this level of knowledge you are truly living blind.

Analyse your pensions
So how do you conduct a simple analysis of your pensions in a spreadsheet?

Firstly, list all your pensions down the left, then create the following headings:

•What is the retirement age of the scheme?
•Is it an active pension, or deferred?
•If it is active, how much do you pay into it? How much does your employer pay into it?
•Is it a money purchase or final salary scheme? If a money purchase, get a forecast of the fund value to retirement age. Get the quote to your selected retirement age. This does not have to be the one selected on the policy.
•Convert the fund value into an income using '5% rule of thumb'. If you are paying into this arrangement, then make sure the illustration assumes this.
•What is the risk in the assets? On a scale of 1 to 10 equities should be valued at, say, risk 7 and bonds between 3 and 4. This is where 1 is low and 10 is high.
•If the pension is a final salary scheme – again, get a forecast to the scheme retirement age, if you are an active member.
•If it is a deferred arrangement, you will have to make some assumptions about the rate of future increases in the pension. Assuming inflation of, say, 2.5% per annum would be a good start.
Now that you have your outline, make sure that you update it each year with the annual statements. Any incorrect assumptions can be ironed out and you can then learn why and how your assumptions were incorrect; increasing your knowledge and understanding.

Once you have grouped the pensions, what do some of them have in common? How can you group them so that statements with similar information can be updated effectively?

For example, you may find that you have several money purchase arrangements that can be amended to have the same retirement age. The statements then begin to fit into the same synopsis.

You may find, having analysed the risk in the assets, there is an exposure to higher risk and you need to ‘turn the gas down’ and take the risk off the table, thus smoothing out the fluctuating valuations on the statements. You may find that you have one deferred and one active final salary arrangement. These both state the future level of income to be paid.

Calculate your income
By now, you have asset value based pensions to be converted to an income. Using 5% of the capital value as an income is not a bad rule of thumb. For example, an asset or fund value of £100,000 could give you £5,000 per annum income.

Final salary pensions provide you with an income which you have analysed. It is now plain sailing to add income with income! So, focus first on segmenting your pensions into final salary and money purchase, and convert them into income at your retirement age. Final salary pensions can be taken earlier or later as can money purchase arrangements. This may take some time to refine but it is worth the effort. Take the gas off any high value money purchase arrangements to minimise the risk of loss.

When you have constructed a plan that you understand, you will be able to relight your pensions into your life, giving them true meaning and purpose once again.

Nicola Downs is a financial planner and director of Trentham Invest in Dorking, Surrey

(Source: http://www.citywire.co.uk/money/pensions-how-to-take-control-of-your-retirement-pots/a456143?ref=citywire-money-featured-articles-list )

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