The pensions landscape is changing. As many private sector companies dilute their commitment to providing pensions for employees, the burden of pension planning is shifting towards the private individual, who may require greater guidance and knowledge of retirement planning in order to make meaningful and informed decisions. Here we give our top 5 questions to consider, when planning a personal pension.
Decide when you would hope to retire
This is the key first step in retirement planning, especially as we are now living longer than our parents’ generation. The average age of death for males is now 86, which implies that your pension may have to last you 20 years or more. Consider this as a (very) extended end-of-life holiday. It is important not to run out of money!
Work out what ‘buying power’ you want in retirement
The buying power of your pension is a more meaningful calculation than simply aiming for a fixed cash sum or a percentage of earnings. Together with your adviser you can set a target, factor in the likely effects of inflation on your savings from now until you retire, and then work backwards to decide what you need to be pouring into your pension pot today.
Review your pensions contributions once a year
Having made your initial prognosis, you should meet your financial adviser at least once a year to revise your pensions calculations and make sure your ship is on course to achieve those elusive lifestyle goals you set at the beginning. In this, it is wiser to raise your pensions premiums in line with rises in average national earnings, rather than on retail price increases.
Consider a stakeholder pension
If you can afford only small premiums, you are probably better suited to a stakeholder pension scheme. While the range of funds where your cash is invested is limited, the management fees charged to you in stakeholder schemes are capped at 1.5% of your funds for the first ten years of the scheme, and at 1% thereafter.
For more ‘heavyweight’ savers, consider a Self-Invested Personal Pension (SIPP)
If you are able to invest larger sums towards your retirement, then a more ‘hands-on’ approach to managing your investment may be appropriate. This might lead you towards a personal pension or a Self-Invested Personal Pension (SIPP), where you have access to a better range of funds. Your financial adviser can help you decide your risk profile, and from there you may discuss investments in individual stocks and shares, individual funds, or perhaps commercial property.
