Pensions

Many of us have a pension of some sort. We probably have a government pension and there is very little that we can do with this apart from ensuring we pay in enough to get a full pension. If we can. However, if we have Personal, work or Private pensions, we have more control over it and you may have questions about it.

Changing Pension Funds

Many pensions will offer a selection of different funds that you can invest in. Often your money will be put into the fund that is felt will perform the best at a medium risk level. However, you may be prepared to take more risk and would like the money moved to a place where it could potentially do better. On the other hand, you might want a lower risk fund or you may want to put your money into a place where it will do good, perhaps in an ethical fund. This is something that you are likely to be able to change if you contact your pensions provider. Make sure that you find out more about it first though. You will need to know a few things –

If it is a work pension, then you may have less control over where the money can be invested as you could find that the companies determine this. If you move the fund that has built up you may also find that you lose some of it, as there could be charges associated with moving. Make sure that you are completely clear on this before you make any decisions about moving. Talk to your pension provider and ask why your money is in that fund and what the costs and consequences would be of moving it. You may not even be able to move it.

Changing Pension Providers

You may decide that you want to change pension providers completely as you feel that there is someone else that will be able to better serve you than the provider that you are currently with. If you have a work pension, then your employer would have chosen the company and will be paying in with you and so it may not be possible to switch anything over. It is possible that you could withdraw some of the funds and move them, but not put new payments into a new place. This could complicate matters but it might be worth calculating the costs and consequences of this. If you move funds, they have to be sold as they tend to be held in shares and then used to buy new ones, this is likely to incur costs which may mean it is not worth it. You need to find this out and think about whether that cost will be made up over time and how long it might take.

If you have a private pension then everything is under your control and this means that if you want to move your money, then there will be nothing standing in your way. However, it could be costly and you need to be completely sure that you know what you are doing. It might be worth paying an independent financial advisor, skilled in pensions, to find out what their opinion is first. They will be able to make personal recommendations based on your circumstances and let you know whether it is a good idea to move and where you should move to. It could be expensive to pay them but it could be well worth the money.

It is very important that you think about a few things so that you can tell the advisor. Consider how much risk you are prepared to take with your money as this could determine what fund it will be put in. Think about whether you want a managed fund as they can pay out more, but the fund manager will take some of the gains as income, so you will have to pay out more. Think about whether you want an ethical fund or whether you have a preference for investing in certain types of industries or areas as it could be possible to choose this, depending on which pension provider you go with. If you are not sure, then they should be able to let you know what all of your options are and you will be able to decide which you think will suit you the best.

Staying Open Minded

It is wise to make sure that you stay open minded about change. If you have paid a financial advisor, it is likely that you will want to change your pension fund as that is what you have asked them to look into. However, they may advise you that staying where you are is the best thing that you can do. This could be hard to accept especially after the time and money that you have spent and you may feel that to get your money’s worth from the advisor, you want them to find you an alternative. However, just be reassured that your money is in the right place for you and be happy that you have not wasted money by having it with a pension that is not getting you as much money as it could potentially do so. It can be good though, to ask them whether it might be worth reviewing again in the future. Pensions are long term investments and they may feel that it would be wise for you to get them to look at your situation again in five or ten years’ time because things will change and it may then be a good time for you to make the switch in the fund.

Retirement is something that we tend to not think about very much when we are young as it draws closer, we might start to worry about it and how we will manage. It can be a good idea to think about it early as that will give us longer to prepare and to save up for it. There are advantages to saving early, but you might wonder if it is worth it considering other things that you need to pay for. It is good to find this out and you can start by doing some calculations.

Ignore Inflation

When you are doing your calculations it is easier to ignore inflation. We know that prices will continue to rise, but it is very hard to predict what they might be in the future and this gets increasingly harder, the further away we are from retirement. It is therefore a lot simpler to calculate it as if you were retiring now. We can assume that income and expenditure will rise at the same level and therefore it will not matter if we ignore rising prices. This may not be the case, but it is so difficult to predict that it can be better to just assume that it is and base your calculations on that. It can be best to plan for a worse case scenario though and assume that you will need extra money than you calculate. If you have too much when you retire it will be better than if you do not have enough.

Calculate Outgoings

You will need to calculate all of the costs that you think you will have once you are retired. It can be tricky, but look at the costs that you have at the moment and start there. You will have to change them a bit as your needs will be different. Some items will go up in price and some will go down.

For example, your gas and electricity bills may go up if you normally work outside of the home as you will be likely to be staying in more and using more appliances and heating in the house. You may also feel the cold more as you get older and need to have the temperature higher. You may pay more money on entertainment and leisure activities as you will have more free time, although you may not go on holiday so often because you may not need to get away as you will not have the stress of work to need to escape from. You may need to use the car or public transport more, if you are less mobile and cannot walk, but that depends on how much you use it at the moment, whether you walk to places now or whether you drive will determine that. Some people downsize in retirement, perhaps but a bungalow or a home with less bedrooms and this can mean that it is cheaper to heat and maintain and will save money. However, others like having space for children, grandchildren, friends and other family members to stay as they have more time for entertaining. It may be hard to predict which you might be likely to do, but it is worth having a think.

A good methodological approach is to go through everything you pay out for at the moment and consider whether that might be more or less expensive if you are retired. It is not a fool proof method but it will at least give you some idea of what to expect. It is wise to think about extra things that you might need to buy that you do not buy at the moment as well. It could even be worth talking to people you know that are retired and they might be able to help you with some ideas. They will know how their spending changed and should be able to help you by letting you know whether there were any surprises. Ask a few people if you can as their experiences are likely to differ.

Calculate Income

It is a good idea to also work out how much income you will have when you are retired and that will help you to then know whether you will have enough to cover the costs of the outgoings that you have calculated. You can go onto the government website to get a calculation of how much state pension you will be likely to get based on your National Insurance payments. It will tell you how many years you will have to keep paying in until you qualify for a pension and whether you will get a full pension or not. You may also be able to find out how much work or private pension you are due to get using similar methods with your providers. It might be that they will send you a yearly statement which will have that estimate on it.

You may have others sources of income as well as your pension though. It might be that you will have some bonds or other savings accounts that pay out interest. It could be that you have some different types of investments that give regular returns as well. You may have plans to get something together before you retire, perhaps investing in a rental property, buying some shares or whatever so make sure that you calculate this as well. It can be tricky to work out exactly how much income might come, especially from investments when there is a risk that there may be no income, and you may lose money as well as the chance that the return could be really big and you will do really well.

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