Pensions are important, no matter who you are. In fact, pensions are probably the most important investment available and can be the difference between a comfortable, enjoyable retirement and one where you struggle.
But how do you achieve a retirement you’re happy with?
This topic is incredibly subjective, and the answers to this question will depend totally on your own expectations and circumstances. However, with the help of a financial advisor and a little bit of soul searching, you can figure out what you want from retirement and how to get there with the right kind of pension investments.
So, let’s dive in with 10 questions to ask yourself when setting up a pension.
- Do you know where all your pensions are?
Over the course of your working life, you’ll usually accrue various pension pots with different employers. Keeping track of these pensions can be complex and things can get difficult in retirement if you aren’t aware of what you’re entitled to.
However, you can trace your pensions and find out exactly what kinds of schemes you’ve been enrolled on in the past.
Once you know where you stand, you can consider pension consolidation, which is the process of bringing all of your pensions together under one scheme. Consolidating pensions is popular for those looking to streamline their pension investments, and you can also reduce charges, simplify admin, and more.
Find out how to consolidate pensions with Pro Start Pensions.
- What’s your risk appetite for your pension savings?
Risk appetite is the amount of money you’re comfortable investing and the investment strategies you’re willing to partake in. Some investments are riskier than others, but higher risk can lead to higher rewards, especially when it comes to investments.
Your risk appetite will depend on your income, objectives, and personal situation, and it’ll be different for everyone.
To work out your risk appetite for private pension contributions, figure out what you can afford to invest on a regular basis and work from there. While higher risk can lead to higher rewards, of course, it can also mean you lose more money if things don’t work out.
Because of this, it’s always a good idea to speak to a financial advisor regarding your risk appetite, like Pro Start Pensions. Our advisors can get to know you and your circumstances, and together, we can help you confidently invest in ways that work best for you.
Speak to a pension expert today.
- What is your target financial goal for retirement?
Your retirement income will be the amount of money you live off when you stop working. For most of us, it’ll be the only income you have available, so it’s essential to have a set financial goal for when you reach retirement age.
To work out your ideal retirement from a financial perspective, consider the lifestyle you want to live when you finish your career. From holidays to general living expenses, not to mention helping out younger family members with weddings, gifts, and whatever else, be honest with yourself about the kind of retirement you want to live and establish an accurate figure.
- Are your pension investments suited to you?
Pension investments will usually be offered to you by your private pension provider or decided upon by them if you don’t feel comfortable making a decision for yourself. Consider the risks of each investment form and find out what works for you, and only choose a financial advisor you can trust with your long-term financial future.
It’s also important to carry out regular reviews with your advisor so you can discuss what’s working, what isn’t, and generally, how things are performing with your pension investments.
- What are the pension charges?
Pension charges differ from plan to plan, and you might be losing money and not even realising it thanks to plans you’ve previously been enrolled on to. This is often the case for older pension providers who charge you if you stop contributing, which takes the form of increasing charges for taking care of your pot after you find another provider.
When taking out a new pension, it’s crucial to understand its associated charges. Discuss this with your financial advisor and only agree to a pension scheme that has charges you’re comfortable with and can afford.
- Is it too early to set up a private pension plan?
Younger people tend to ignore the idea of retirement entirely because it seems like a distant concept of the future. However, it’s never too early to invest in a private pension and doing so could be the difference between a happy and a relatively miserable retirement.
Starting early not only means you can contribute more, but that you can contribute smaller amounts more regularly in line with your income. This approach means you can benefit from compound interest, enjoy more tax relief, and earn more money for retirement, so never think you’re too young to consider your retirement plans.
Speak to a pension expert today, no matter your age.
- Is your pension flexible?
Pension flexibility comes in many forms. From the ability to take money out when you need it and leave the rest to be invested, to taking a tax-free lump sum before retirement and starting a drawdown, and more, the options are plentiful but often confusing. There are also lots of different schemes in place that could affect your previous pension plans, with options available now that weren’t in the past.
Understanding the flexibility of your pension helps you plan properly for the future rather than being met with nasty surprises once you hit retirement age. Again, it’s recommended to speak to a financial advisor regarding pension flexibility, so you fully understand the pension plan you’re committing to.
Speak to Pro Start Pensions today.
- How much can you afford to save for retirement?
Having an idea about your retirement lifestyle is great, but can you actually afford it? Speak with a financial advisor to riddle this out and consider your current lifestyle, career, investments, and income to understand what you can afford to contribute to your pension.
While it’s obviously better to invest more, it’s important to only contribute what you can afford as you won’t be able to withdraw or use your pension fund cash until you retire. This isn’t always the case with other investments or savings products where you can take money out throughout your life.
- Are there tax benefits of your pension scheme?
Pension tax relief is a complex beast, but there are plenty of options available with the majority of personal pension plans. For example, for workplace pensions, you can get tax relief on personal contributions worth up to 100% of your annual earnings.
Then, there’s automatic relief, which comes in two forms. The first is where your employer takes contributions from your pay before deducting Income tax. The other, known as relief at source, is where your provider claims relief from the government at the basic 20% rate and adds it to your pension fund.
To find out more about tax relief on pension contributions, visit our website.
- Does your pension consider inflation?
UK State Pensions have what’s known as the triple-lock guarantee, which is an increase every year to match September’s highest inflation figure, earnings growth, or 2.5%. While this applies to State Pensions, private pensions don’t include any such guarantee, so you need to make sure your retirement is built for rising inflation.
While inflation, i.e. the rising costs of services and goods in shops, doesn’t directly impact your investments, its relative value can be negatively affected by rising inflation. In simple terms, if your savings and investments don’t grow in line or above inflation, then they’ll lose value in real terms.
Alternative investment strategies could be the answer to this quandary, such as inflation-protected securities or real estate. The best advice we can offer, however, is when you’re considering a pension, think about inflation and ask your financial advisor for guidance in this regard.
Summary
Your pension is the bedrock of your retirement income, so it pays to be knowledgeable about what you’re signing up for and contributing to on a regular basis.
By asking yourself key questions regarding your pension, you’ll be able to find peace of mind about your future, safe in the knowledge that you can live out your retirement on your own terms, in line with your lifestyle and financial objectives.
As with any financial advice, pension planning can be simplified and improved with the help of professional advice. Some of the answers to the questions we’ve covered can’t be found by yourself, but a trusted financial advisor will be able to walk you through the complexities of each of the above and more.
To speak to a pension expert, get in touch with Pro Start Pensions.
