A lot of thinking went into a setting up a personal pension in the old days, especially when there wasn’t an employer’s pension scheme you could join. You’d have to decide on your risk appetite, which pension provider to go with, your investment strategy, which funds to invest in, your target income in retirement and finally make a decision on how much to contribute. Most would need the help of a financial adviser in making these important decisions.
Today, life is a lot easier. Most employed people have an employer’s pension scheme they can join and largely, these difficult decisions are made for you. You join your employers pension scheme, decide how much you would like to pay every month and that’s it. Most employers pension schemes have a default fund choice, have set amounts you can contribute and will have a retirement date set for you at outset. Things like target income and investment strategy rarely enter the discussion.
But is that a good thing? Yes and no. Yes, because having too much choice can lead to analysis paralysis and prevent one from making a decision. Yes, because less choice means less need for advice which costs money. But a big NO, because taking the default option is lazy and may not deliver the results you require. So how can you have both your cake and eat it? Here’s how:
1: Join it: The first step is to join your employers’ pension. At the very least, ensure you pay as much as you can to receive the maximum contribution from your employer; especially if you are older.
2: Get advice: Do you know how much you’d want as an income in retirement? Do you know what sort of risk you’d need to take to achieve that goal? Do you know what your investment options and choices are? With the help of an independent financial adviser, you could get more out of your employers’ pension.
3: Have a strategy: If you’re younger, you may decide to start with an aggressive investment strategy and then tone it down a bit as retirement approached. Would you consider a low-cost tracker fund or a managed fund? What about the individual shares you are investing in? Would you prefer ethical funds or is performance everything, regardless of how it is achieved?
4: Take stock of what you already have: If you’ve changed jobs a few times, you may well have old pension schemes from previous employers. What to do with them? Good ones, such as final salary schemes would be worth keeping but others may be worth transferring into your current employers’ pension, thereby giving the fund value a boost and benefiting from economies of scale as many pension providers reduce charges for larger balances.
5: Review to ensure you are on track: Without a fair amount of luck, long term investments such as pensions can’t simply be left alone and expected to deliver the desired results. They need to be monitored, tracked, reviewed and tweaked. This is where having an independent financial adviser with the right retirement planning tools could help. This advice, which, would of course, come at a cost could potentially make a huge difference to your retirement provision.
And that’s it. A little time invested could make a huge difference. Whist’s employers’ pensions may be considered confusing and boring, remember that retirement itself would be the longest holiday of your life. Imagine not having the financial resources you’d need with all that time on your hands? Unthinkable.
