6 tips for better pension planning – Alexa Wang
According to recent reports, more than 15 million people in the UK are not saving towards their retirement – that’s around a third of the workforce. If you count yourself among this number, it may be the case that you are planning to rely on your state pension.
But doing so can put you in a difficult position, as many experts agree that the state pension will not be able to fund living standards without help from your own pension.
With people living longer than ever before it has been very important to take a more active look at how you are saving for your retirement. There is a huge wealth of options available and it can seem very confusing and overwhelming when trying to make decisions. But it doesn’t have to be impossible – once you understand the basics, you can get to work saving in the knowledge that you are making a smart investment.
I spoke to experienced independent financial advisors Reeves Financial to get an idea of the range of options available to pension savers. Here are six tips for better pension planning that anyone can follow to give help them save and plan effectively.
Take advantage of your work pension scheme
By law, all employers in the UK must offer a workplace pension. There are many different kinds of work pension, but one of the most common is a defined contribution scheme where an employee contributes to their pension pot with an amount that comes directly out of their pay. No matter what kind of workplace pension your employer has in place, there are a few things you need to know.
Firstly, you will be auto-enrolled on this pension scheme, although it is not mandatory and you can opt out at any stage. Some people are tempted to do this, but if you are going to opt out you need to make absolutely sure that you begin contributing to your own pension. Auto-enrolment typically places you on the lowest level of savings and this will not be enough for a substantial pension pot.
Additionally, it should be noted that you generally are able to up your contribution to your pension scheme and this could be especially valuable if your employer will match your contribution as is the case in many schemes.
Speak to a financial advisor
As has already been mentioned, the variety and range and types of pension plans available can make the whole process seem too complex. This is why it can be so vital to speak to a financial advisor with experience in pension and retirement planning. Everyone’s individual circumstances are different so it is impossible to suggest advice that would be relevant to everyone – an independent financial planner can provide you with unbiased advice pertinent to you.
Be aware of all the options
In any circumstances it is important to be broadly aware of the different options available to you when it comes to planning your pension. Aside from the aforementioned defined contribution scheme there are also a these possibilities:
- Personal pension – a personal pension is where you choose your own pension provider and make arrangements for how contributions are paid and how much is taken
- Stakeholder pension – either offered by employers or set up by individuals, stakeholder pensions are typically cheaper and have a number of minimum standards including charge-free transfers, low minimum-contributions and a default investment fund
- Self–invested personal pension (SIPP) – this is a type of personal pension that is usually more flexible in terms of the investments that you can choose
One of the most important things you can do with your investment planning is to diversify. Putting all of your money into one plan can be risky as if anything happens to that fund and investments fail to grow, you can be left with less money than you thought.
Consider taking some level of risk
Some people are concerned about investing in shares. Yes, shares are undoubtedly a riskier option than cash or bonds, but these also typically have a much lower growth rate. Therefore it is always best to have a portion of your pension invested in shares. Over the long-term shares have historically performed better than low-risk investments, but there is no guarantee they will in the future, so a balanced approach is definitely going to be favourable.
Regularly review your plan
When you are making pension planning decisions for yourself, you need to keep up-to-date with the progress of your investments. As you get closer to retirement this becomes more important. You can currently access your pension pot at 55 and can then use either part or all of it to make your own investments. Before doing this, however, it is vital that you take professional advice on whether this is the best option for you.
6 tips for better pension planning – Alexa Wang