RetirementRetirement PlanningAAM 5I's pensions

The 5 I’s of pension disappointment and how you can avoid them

One thing we all have in common is that we will not work forever. To prepare for the day that we stop working, most of us will have built up retirement savings over the years – much of this in UK Pensions.

Pensions are a great way of saving for retirement as they allow us to get tax relief on the money we pay in, pay no tax on the fund before taking benefits, and having up to 25% of the fund as a tax-free lump sum*.

With these advantages pensions can seem perfect but there are hidden dangers. Below we discuss the 5 I’s of pension disappointment and the simple steps you can take to avoid them.

1. Investment mismatch

The investment strategy used in your pension can make a huge difference to the outcome you experience. Your current pension may be invested in a way that is too cautious and be unable to deliver sufficient returns to achieve your goals. Conversely you may be taking far more risk than you would like or indeed need to and are therefore putting your retirement at risk.

You should speak to an expert who can help you review whether your pension is invested correctly and if not what you can do about it.

2. Inefficient cost structures

Like your mobile phone, your pension can offer far more and cost less today than it did 10 years ago. It may be that by having an older pension, or having your money split amongst several smaller pots, you are paying too much for your pension.

You should review whether you are getting value for money from the annual fees on your pensions and be aware that a small percentage change in the annual fee can make a very large difference in the long term.

3. Income mismatch

Many people need to have flexibility over their pension income in retirement – be able to spend more in the early years when younger and healthier, less when they take it easier but have the ability to have a higher level of income in later life to cover greater healthcare needs. Often pensions cannot provide this degree of flexibility and indeed many provide the lowest level of income when you are best able to enjoy your life.

Talk to us to find out if your pension can support your chosen life in retirement and what you can do if it can’t.

4. Inactive approach to pensions

It is too easy to ignore your pension as retirement is a long way off. This can be a recipe for disaster if your pension is not as it should be. Just like not going to the doctor if you are ill, you may not have time to recover from this if you leave it to the last minute to look.

You should review your pension at least on an annual basis to make sure that it is fit and healthy and that you are on track for your ideal retirement.

5. International issues

If you do not plan to retire in the UK, unless your pension is held, and payments made, in a currency other than Sterling you will be exposed to currency risk. This means that if the pound becomes weaker the money you have to spend in retirement may fall. For example if you were drawing a pension in Singapore in August 2006 your would have received $2.97** for each pound – now 15 years later you will get $1.87**, a drop of over 37%!

To make matters worse, following the end of the Brexit transitional period, many Britons living in the EU are finding their UK banks are closing their accounts – this is causing severe difficulties for those whose pensions can only pay income to a UK bank account.

If you may retire outside the UK you should check if your pensions can invest and pay income in a currency other than Sterling and if payments can be made to a bank account outside the UK.

Are you at risk of pension disappointment? If the answer is yes or you are unsure, speak to AAM and have an AAM UK Pension Audit without delay.

Your AAM UK Pension Audit will confirm:

  • what your pensions are likely to deliver
  • if you are on track to hit your retirement goals
  • if you have the optimum pension for your retirement plans including;
    • the way your benefits will be paid, both during your lifetime and after you pass away;
    • how your money is invested; and
    • if you are paying too much for your pension 

* UK Tax law provides that up to 25% of the plan value, subject to your available lifetime allowance, can be taken tax free. Tax may be payable in your country of residence.

** Source historical rates 3/8/2006 and rate on 3/8/2021



This article is an op-ed piece by Ian Black. The views expressed in this article are those of the author and do not necessarily reflect the views of AAM Advisory Pte Ltd. The article is intended for general circulation and for information purposes only. It may not be published, circulated, reproduced, or distributed in whole or part to any other person without prior consent of AAM. This document/article should not be construed as an offer, solicitation of an offer, or a recommendation to transact in any investment products. The information does not take into account the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a licensed financial adviser regarding the suitability of the investment product before making a commitment to purchase the investment product. Past performance is not necessarily indicative of future performance. Any prediction, projection, or forecast on the economy, securities markets or the economic trends of the markets is not necessarily indicative of future performance. The value and any income accruing to the investments, if any, may fall or rise. An investment is subject to investment risks, including the possible loss of the principal amount invested. Whilst we have taken all reasonable care to ensure that the information contained in this document is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness. Any opinion or estimate contained in this document is subject to change without notice. The above report may contain data obtained from third parties and as such we cannot guarantee the accuracy of this data.