A pension plan is more than just a financial product for retirement. It is a product that should also generate sufficient profitability so that our savings can grow faster and faster. If this is not your case, don’t worry, because, you can change it for free by transferring your pension plan and thus accelerate the growth of your assets.
However, before taking the plunge, you should know the pros and cons, so that you can find the best option for your savings.
What is a pension plan rollover?
A pension plan transfer is a mechanism that allows the holders of this product to move capital from one plan to another, probably from an alternative entity or manager. In short, what takes place is a mobilization of vested rights as if it were a simple transfer, since it has no tax implications. However, a transfer may entail different conditions, so it is necessary to read the fine print of the new plan.
Why make a pension plan transfer?
A meager return is one of the reasons that can lead us to make a pension plan transfer, although it is not the only one. In fact, there are up to three fundamental reasons that push certain savers to mobilize the vested rights of their plan:
- Diversification: the transfer may be due to the fact that a saver wants to spread his funds among different pension plans, thus diversifying the risk. This is possible because the transfer of a pension plan can be done in parts and not in total.
- Dissatisfaction with the conditions of the current plan: In some cases, savers are not completely satisfied with the performance of their pension plan or with the conditions of the plan, e.g., high fees. Therefore, the transfer allows them to withdraw their savings without having to wait for retirement.
- Change in investor profile: people’s savings profile can vary according to changes in their personal circumstances over time. Thus, some users may use the transfer of a pension plan simply to change the investments in the plan and take on more or less risk.
Advantages of making a pension plan rollover
Carrying out a pension plan transfer has many advantages. One of the main ones is that it allows the saver to modify his investment strategy to adapt it to his situation. A maxim in investment and in life is that nothing is static and everything is changing, so the best option is always to adapt to these new situations. Therefore, being able to transfer our pension plan at no cost by looking for better alternatives is an advantage.
But it is not only about changing the investment strategy, but also about achieving better results. Mainly in the form of profitability, but it is also possible to make transfers in order to pay fewer fees. After all, reducing the cost of our investments has a positive impact on our long-term results. Moreover, when you make a transfer, you do not lose your vested rights; in fact, you still retain your seniority for tax purposes.
In the end, with these advantages, what we are achieving is to make our retirement savings plan more flexible, but also more resilient and profitable. In addition, how those changes are geared toward better results in the future is also a way to achieve our goals more efficiently.
What to consider before making a pension plan transfer?
The cost structure or the historical profitability of the assets in which our money will be invested for retirement are two crucial aspects to take into account:
- Not paying more for our pension fund: a pension plan is a structure similar to that of an investment fund, since it takes resources and invests them in the expectation that they will increase in value or generate a flow of income. To achieve this there are different alternatives, one is to achieve it actively, with a management team, others is to use a passive position, indexing to certain indexes. In this case, the best results are usually achieved with the second option, since it is much cheaper, which results in better long-term returns.
- Historical performance: as a general rule, past performance does not assure similar future performance. This is one of the maxims in the investment world. However, the history of a fund helps us to assess the performance of that same product, in this case the pension plan. Therefore, it is also a point to take into account when we are going to make a transfer.
Transfer of pension plan in banks
Banks are typically very proactive in attracting pension plans. However, the results obtained by their pension plans are not often very good. Firstly, because the profitability obtained in many of their products is quite low. But more important is the second part, because their main problem is that they charge very high fees. In fact, it is thanks to these fees that they do not mind being aggressive with their recruitment campaigns.
And it is necessary to look at the small print, which not only includes historical profitability or commissions, as we have seen, but also the required permanence when we take advantage of a bank offer to transfer a pension plan.
inbestMe the best option to manage your pension plan
Now that we know what the transfer consists of, it is time to choose the best pension plan. This means that one of the best options is to opt for some roboadvisors in the sector. In this case, one platform that stands out above the rest is inbestMe. The firm has been operating in Spain for more than five years and has already won some awards for its intuitive platform and technology. Not to mention its results.
So, to give you an idea, the firm’s pension plan can be contracted or transferred from just 250 euros and has obtained an average return since its launch of 5% annualized (in its variable income version). And all this with commissions of less than 1%, while some banks charge their clients between 1.8% and up to 2.5% for their retirement products. In short, if you are not yet benefiting from inbestMe’s products, now is the time to take the plunge, transfer your pension plan and start enjoying all its advantages.
