As competitors in the recent Olympic Games will no doubt testify, you only get out what you put in. For athletes, they know that to achieve their ambitions, they need to train, plan and strategise to the point that when their event is over, they can say they could have done no more.
When planning for one’s retirement, for some, retirement ambitions will remain as ‘if onlys’ rather than being successfully achieved objectives, unless appropriate plans and strategies are implemented. That way, whether or not retirement goals are reached, they too can say that they could have done no more. However, the good news is that these are much simpler steps than those needed to win a gold medal.
Start as early as possible
The earlier that one starts saving, the better. The longer that money is left invested the greater the compound effects of positive investment growth. Consequently the greater the period of investment, the level of contributions needed to be made to achieve the same end result is less. The opposite of course is true in that the longer funding is deferred, the greater the amount required to achieve the same fund. This is often known as ‘the cost of delay’.
Even if funding is commenced at a minimal level, it is better than nothing at all. The earlier it is started, the earlier it becomes a habit, the more it becomes a part of monthly expenditure and the less it will be missed from income.
Get out what you put in
Don’t be under any misapprehension. By that we mean that clients should make sure they understand what is likely to be accumulated by specific contribution levels. A decision may be made to make a contribution, either as a set amount or as a percentage of salary. Make sure to find out what benefits are being projected rather than blindly contributing thinking it will be adequate.
Indexing contributions ensures that pension funding automatically increases each year, meaning that if there is nothing to spare to add to retirement planning at the end of a year, funding levels have still increased.
Also, always think net and not gross. That way, if one can afford £400 per month, think of £400 net, which equates to £500 gross of basic rate tax relief. If one is a higher rate taxpayer, £400 net equates to £666.67 gross. If tax relief is factored in, retirement goals may become all the more achievable.
Grab what you can
If there is a pension arrangement as part of the terms of an employment, join it! A recent new client we acted for had never joined a company pension arrangement, as they had not anticipated staying with the employer for long. Over 10 years later and they are still with the same employer. Whilst they have still been actively saving for their retirement during that period, they have missed out on the benefit of an employer contribution for over 10 years! The moral of that story is to join an employer sponsored scheme for how ever long that particular employment is expected to last.
Where such a scheme exists, it is often the case that an employer will offer to match employee contributions, or alternatively employers may offer tiered contribution levels. If it is possible to claim a higher contribution from an employer, then do so.
Here we would refer you back to the second point. Do not assume that because maximum contributions are being made that that is enough. If further contributions are warranted but are unable to be made via the main scheme, contribute to a separate arrangement simultaneously.
Check the charges
The charges of many pension plans are often pegged by pension providers to protect against a mass exodus of their portfolios purely for the reason of excessive charges. However, some older policies can have quite convoluted and expensive charging structures. Equally, because of the advent of technology, and ever increasing market competition, some newer policies can be more expensive than need be too.
Check the funds – risk
When undertaking work on behalf of clients, it is all too common to see them investing into a pension without fully knowing where their money is being invested, appreciating what risk is associated with that investment and understanding whether that is at one with their attitude to, and tolerance of, investment risk.
One should always ensure that these are acceptable and be considered both on a stand-alone basis and as part of an overall investment portfolio.
Check the funds – performance
Not only is it imperative that pre-retirement funding is made to appropriate investments but also to ensure funds / investments are performing to acceptable levels. Below par performance can have a significant and detrimental impact on the overall return from retirement funding. There can be a substantial difference between a good fund, an average fund and a poor fund.
Don’t misplace a pension
Every pension pot counts, no matter how large or small. So don’t lose them. If paperwork is misplaced, we can endeavour to help in tracking down the pension. A good place to start, however, is the Pension Tracing Service.
A good pension provider is not necessarily a good pension provider
No matter how well a pension is funded, invested, managed and maintained, a large influence on the resulting benefits can be the provider of the pension income. Often this is secured by way of an annuity. As with fund performance, there can be a substantial difference between a good annuity provider and a poor annuity provider. A highly competitive annuity may be increased yet further if the pensioner qualifies for enhanced or impaired life annuity rates. The benefit from these is down to the severity of the condition.
Feel free to contact us for an informal chat about your own pension planning to ensure your retirement planning is in gold medal winning form.