Pension Planning

How do I plan my pension?

First things first, take stock of the current pension pots you do have. If you’ve worked in multiple roles across different employers, it’s likely you’ll have a number of active pension plans. By pooling some or all of these into a single private pension, you’ll gain a more accurate picture of your current position.

From there, you need to determine your retirement needs. Having realistic expectations about your spending habits will help you ascertain the required size of your retirement plan. Most people believe that to be around 70% to 80% of their current spendings. But this depends on your mortgage and if you have post-retirement goals like travelling.

Additionally, it’s a good idea to factor in any purchases you might want to make after you retire, such as a home or fund for your children. If you don’t, you could outspend your allowance and run out of income. Pensions are a constant balancing act – only by putting in the accurate investment will you feel truly secure in your lifestyle.

Speaking of investments, it’s important to evaluate where your current scheme invests your money. A number of plans have ‘default’ options, but these may not be the best for you. Review alternative schemes based on how much you hope to spend and how long is left until your chosen retirement date. As you get closer to retirement age, try to be more conservative to ensure your expected return.

Which is the best pension plan?

It all depends on your position. Most people are auto-enrolled into their company pension, where your employer contributes at least 3% of your salary. You may have chosen to opt out of your workplace pension if your existing plan already has individual, fixed, enhanced, or primary protection. This is where you’ll have fixed your lifetime pension allowance at a previously higher level, which you’ll lose if you take your employer’s pension.

There are a number of pensions you can choose from, the primary distinction is whether or not yours is final salary or money purchase.

Final salary

Also known as benefit schemes or Career Average Revalued Earnings (CARE) schemes. These pensions are largely funded by employers, though staff may also have to pay into them. This model allows you to get a percentage of your final pre-retirement salary, or, when leaving the business, as an annual income.

Group personal pensions

Such pensions are between you and a third-party insurance provider. Your employer chooses the provider, although you are offered a choice of investment opportunities.

Stakeholder pensions

Much like workplace pensions, stakeholder pensions have low and flexible minimum contributions, capped charges, and a default investment choice. As mentioned earlier, this could mean the investment in question isn’t in your best financial interest.

Self-invested personal pension

Like DIY pensions, here, you can choose your investment, as long as you’re willing to manage the pension yourself and pick the right provider.

Obviously, the choice you make impacts your pension income. UK-based pension advice specialists can guide you on this.

Where can I access pension advice?

Whether you’re looking for help with choosing a pension, planning your retirement or delaying your state pension payments, there’s a wealth of resources available. You can get free basic advice from the Pensions Advisory Service and Pension Wise – the latter assists with handling defined contribution pensions.

But this guidance will only get you so far. If you truly want to maximise the value of your pension then it’s worth consulting an independent financial adviser (IFA). You can do this up to three times a year without a tax charge – although not all pension schemes offer this.

IFAs may cost money in the short term, but they could save you thousands in the long run. An IFA is able to advise and sell products from any provider across the market, allowing them to give the most comprehensive support possible.