New Year: Time to Take Stock of Your Pensions

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January 05, 2022 - Karl Jones

New Year: Time to Take Stock of Your Pensions

The start of a new year can give savers impetus to review their pension savings and focus on long-term plans. Getting an up-to-date figure of the total amount invested so far and how much income you are on track to receive in retirement is a good starting point to reconnect to your retirement plans. It is also a good time to review the fund choices of your pension plans, and whether or not the industries and sectors your money is being invested into align with your personal values.

Many people accumulate several pension pots over the years. Often when you change job an employer will offer a different pension plan, and it is not uncommon for retirement savings to be spread across several investment companies. These pensions will be invested in isolation from each other and may have different charges associated with those funds. Older schemes can carry high charges which are no longer competitive, and in some cases, paperwork has been misplaced and pensions are lost and need to be found.

Using January as a key date to review how your retirement savings are invested and progressing is a great way to get to grips with your retirement plans and, if you need help, a financial adviser can guide you through this.

Reviewing what you have already got

With your combined pension plans in front of you, you will have a combined total of your invested money, with this figure a financial adviser will be able to give you an estimate of how much income you could expect at retirement. There will be lots of variables which come with this estimated figure. It is important to remember that how you draw your retirement income will depend on your circumstances and health at that age. It is used as guide to help decide if you are saving enough, or if you need to contribute more.

How you are invested for retirement is an important consideration. An adviser can help you to review you current pension savings portfolio to ensure the current plans are performing as expected and are not in a plan that carries very high charges.

As a general rule, if you are in your 20’s and 30’s you can often be at the best stage to take higher investment risk as you have the time frame to sit out large rises or falls in markets. The closer you are to your chosen retirement age the less exposed you will want your money to be to short-term fluctuations of the markets, so high risk is not the best strategy. Some pension plans offer a default ‘life-styling’ option, which reduces your investment risk from high to lower risk the closer you get to your chosen retirement age.

If you have an older pension plan with high charges, it may be worth considering moving those funds into a new scheme which offers lower fees.

If you are considering adjusting risk level of your pension funds, then it is important that you take advice before you make any changes to your fund choice.

Going green with your pension

Investment companies have come under increasing pressure to provide fund choices to the consumer where the focus is on ethical and green industries. There are now a growing number of funds options available with excellent past performance data, dispelling the myth that in order to invest in green funds you may have to compromise the returns you get.

A growing number of people want to live a greener lifestyle in 2022, and ‘going green’ can extend to your pension choices: shifting your finances towards sustainable options is a key way to do this. Many pension schemes now offer a default which prioritises ethical investments, and these provide an easy way to move your money into sustainable funds. A financial adviser can discuss the options available and explain the level of risk and returns, it is important to take advice and fully understand the implications before transferring pension money.

Whilst some people are happy with a general ethical or sustainable fund, others want absolute control of their pension funds selection. If really know your own mind on what you want, self-invested personal pensions (SIPPs) can provide the control you might benefit from. SIPPs, essentially DIY pensions, allow consumers to invest their pension money with full control of the fund choices, but unless you are a highly experienced investor this is best done with the help of a financial adviser.

ISAs can be used for retirement

Whilst pensions offer excellent tax benefits, they are designed to lock away money until you are at least the age of 55. Many people like to have some of their pension money in more accessible accounts like ISA’s, even if they don’t intend to use the money until they stop working. And ISAs offer an excellent way to invest tax free.

ISA’s also offer a great way to diversify how you invest for your retirement. If you don’t want to change the default choices your pensions are already invested in, your ISA portfolio can be a way to choose investment areas or sectors that match your values or interest you.

Rather than making one large investment at the end of the tax year, drip-feeding cash into your ISA investments on a regular monthly basis can be better. This phasing in approach can help to iron out some of the volatility associated with investing.

 

Find out more

If you would like help to review your pension savings, or if you are approaching retirement and need advice on how to turn your investments into an income, our team are here to help. Call Furnley House on 0116 269 6311 or email info@furnleyhouse.co.uk

 

Past performance is not a reliable indicator of future performance.

The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

 

All information correct at the time of writing.