Recently, we looked at a number of things to consider when you are planning for your retirement, specifically looking at pensions.
Pensions are a tax advantaged way of saving for retirement. You may already have a pension you can pay into, such as a work pension. If you haven’t got one already, and are looking into starting one, you may want to consider the following…
1. The range of available investments
Firstly, you should look at the range of investments provided by a pension. Most people will invest into “funds” as a convenient and diverse way of investing, and you should find out about the range of funds available.
Every fund has a mandate, e.g. UK or Global Equities (shares), Property, Fixed Interest (loans to companies), Cash or a combination of these. If you invest in a fund with a mandate of UK Equities (shares), by investing some or all of your pension into it, the amount you put in will be invested in a diverse portfolio of shares selected by the fund manager and monitored on a daily basis. Therefore, using funds means you do not need to have the time and expertise to research investments as someone else takes care of it for you.
That said, not everyone will want to invest into funds. Some people prefer to choose their own direct investments, using a “Self Invested Personal Pension” (SIPP). The list of allowable direct investments is quite wide and includes things like commercial property (for example, an office, warehouse or hotel), a bank or building society account, shares and even gold bullion! What’s more, these can be based in the UK or overseas.
2. Contract charges
You should compare the contract charges of providers. Your pension provider will deduct charges directly from the pension fund rather than billing you directly. This will either be a percentage charge (possibly with a discount for a large fund value) or monetary amount.
If the size of your pension fund is fairly modest, a percentage charge is likely to be cheaper, but for larger fund values, a monetary amount may be more financially beneficial. Remember to include all charges in your comparison; alongside the pension provider charge there may be a separate charge for the funds invested in and some providers make additional charges for switching funds.
3. Online access to your pension
Are you able to access the value of your pension and switch funds online? It is important to be able to access your accounts quickly and easily!
4. Financial Strength
You should check the financial strength of pension provider. One indication of a provider’s financial strength is the rating given to it by credit rating agencies. Although all pension providers are required by the financial regulator and watchdog (the Financial Conduct Authority) to maintain a minimum level of financial stability, the stronger the provider’s financial position is the better.
5. Flexibility and Administration
Finally, how flexible is the pension contract? How easy is to stop and start regular contributions or make lump sum payments? What is their reputation for complaints and administration? How adaptable your investment is can be an extremely important factor.
Article by Daniel Cook, Adviser Support for Charles James Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority