How to manage your pension for a better retirement.
For many people a happy and fulfilling retirement is their ultimate reason for investing.
We believe the most effective way to reach that goal is by investing into a Pension – either through an employer’s Workplace Pension or a Personal Pension set up through a financial adviser or opened directly with a provider.
That’s because you can invest 100% of your earnings or up to £40,000 (whichever is greater) per tax year, including any tax relief you may be eligible to claim. For a basic rate taxpayer, that can boost your contribution from £800 to £1,000.
In this guide, we explain how effectively managing your Pension can help you do more with your money.
Set a clear goal
When managing your Pension, you need to know the destination you are aiming for. The most important thing at the outset is setting your goal – at what age do you want to retire and how big of a Pension pot will you need?
To work out how to achieve this goal, think about your retirement age, and how long you envision being retired for, and the lifestyle you want in retirement.
For example, to retire at 65 for 30 years with an annual income of £20,000, you’d need a £600,000 Pension pot.
Once you have a goal set, you can then always see if you are ahead or behind target and manage your contributions to match.
Make regular contributions
It seems obvious, but one of the most important aspects of managing your Pension is to regularly pay in to your investment. However, unlike a savings account, a Pension can’t usually be accessed until you are 55. A savings account offers flexibility and easy access, and could be suitable for risk averse clients or short term goals. A Pension is for the long term goal of retirement, and is something you should consider carefully.
It can be easy to put this off, as your retirement can seem so far away and you’d prefer the short term benefits of extra money. However, over a lifetime of compound growth it could make a big difference if you can pay in more to your Pension today.
Consider setting up a direct debit, or using a top up feature such as impulseSave® in the True Potential app to ensure you pay in regularly to your Pension – potentially meaning achieving your retirement goal sooner, or being able to retire with a bigger pot than originally envisioned.
Track your performance
To manage your Pension effectively, it is worth regularly checking in on your performance. A Pension is for the long term, for decades of your life, but it is still useful to engage with what’s happening on a regular basis. It could be beneficial to go with a provider who allows you to regularly check your Pension performance.
Tracking performance can help you to think about your investment. For example, when markets are low, there may be the opportunity to invest at a lower cost, and benefit from subsequent growth when markets recover. Regularly tracking performance may help you to think about investing, although keep in mind it is almost impossible to time the markets, and consistent investing over the long term is the basis for building wealth.
It may not always be the case that transferring is the best idea. For example, if your current Pensions have specific benefits, such as guaranteed income when you retire. It may also be the case that there are penalties to transfer out of a Pension. Consider the risks of moving before making any decision, and if in doubt consult a financial adviser.
Set up your beneficiaries
It is important that you manage your Pension’s legacy, thinking about what will happen to your wealth in the event of your death.
That’s why it is imperative that you fill in your Pension’s ‘Expression of Wish’. This names the person or people .
This is a vitally important part of your financial legacy, as money passed on through a Pension isn’t usually considered part of your estate and isn’t liable to Inheritance Tax. A family member could inherit your Pension, choose to stay invested, and continue to grow wealth inter-generationally.
Speak to a financial adviser
It may be best to speak with a financial adviser, they can help you to make better decisions around managing your Pension. By talking over your goals and aspirations, disposable income and other Pension pots you may find new ways to increase your wealth, retire earlier or pay tax more efficiently.
A qualified financial adviser can also set you up with the technology and tools to better manage your Pension for your retirement and, if you wish, set up your legacy for future generations.
If you don’t have a financial adviser, get in touch with True Potential today to find out how we can help you do more with your money.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Tax rules can change at any time. TPI Pension eligibility and tax rules apply. You should also ensure your contribution does not result in your total Pension contributions within the tax year exceeding £40,000.This blog is not personal financial advice. You will not be charged for using ImpulseSave®, your investment will be made in the normal manner and subject to the charges you agreed to at the outset. ImpulseSave® is a registered trademark of True Potential Investments LLP.