Don’t lose track of your pension especially when you move job!
If you had thousands in a bank savings account, you would remember keep a good eye on it. You should think about your pension like that.
Do you know and understand where your pension is invested? Or even how much is there?
As we go through life most of us will work in multiple businesses and industries, hopefully contributing to your towards your retirement along the way. It’s important to keep track of everything.
However if you have lost track of a pension from a previous employer, all is not lost.
The first step is to get all the necessary information. A simple signature on a letter of authority and the fund management company is legal obliged release the information to your broker.
Once we have the information, you can begin to make informed choices. We will help you to understand those options.
When you are in a company scheme, you are one member of a scheme. Often the employer will match some or all your contributions which makes it a really good investment when you take the tax relief into account.
For example, if you put 5% of your salary and your employer puts 5% into your fund, this would be costing you a net amount of 3% of your salary after tax relief (assuming you are a higher rate tax payer). This means it will cost you just 3% to have 10% of your salary invested in a pension.
After leaving employment, many people choose to move their money out of the scheme and into a policy in their own name. This is called a Personal Retirement Bond or Buy-Out-Bond. This gives you control over how your money is invested.
The three key areas that are important when it comes to your pension are;
1. Performance
The performance of your pension can make a huge difference over the decades that it is invested in. This could be the difference between a comfortable retirement and struggling in old age so it is vital that the performance and risk level be suitable to you the whole way through from start to retirement. This will change throughout your life.
When you are young, you are naturally more tolerant to risk and seeking a higher return, you also have a lot of time to recover from any market slumps. When you get older the tendency is towards being more risk-averse, not wanting to lose a chunk of your hard-earned retirement pot just before retirement when you don’t have the time to recover from such a loss.
We will know what your tolerance for risk is by having you complete a risk profile questionnaire. This is a short questionnaire that you should complete every 2-3 years to make sure that your funds are appropriately invested according to the risk you are willing to take.
2. Advice
The performance above, with the vast majority of people, will only be achieved with the help of a financial advisor.
After figuring out what you want from your pension on retirement, your risk tolerance level and how much you can afford to invest now, the advisor will recommend some appropriate providers and funds for you to consider and explain why they suit your needs.
This should be reviewed every 2-3 years at least to make sure it is still correct and to keep up with any changes in your own circumstances. As people get older and move towards retirement, their lives change. Children grow up, mortgages and other loans get paid off. This should increase the amount of disposable income available to invest and boost the pension pot.
3. Fees
This is a very important area as fees directly impact the growth rate of the pension fund. Also to be considered here is the fact that some of the better performing funds have higher management charges. Sometimes you pay for what you get.
So concentrating solely on fees is not a good idea either. It is a trade-off between good performance and advice and fees. Your advisor can talk you through all this and you will be fully aware of what management charges you will be paying.
