If you have come to understand why pensions are so important you’ll know why it’s essential to start saving as soon as you can. Even If your retirement is a long way away it would be far better to start saving early. It may seem unnecessary to start saving when in your 20’s, but not only will you find it easier you are more likely to reach your retirement goal and perhaps exceed it. If you have waited until later in life you will have to be prepared to put by a significantly larger amount. Here are a few key points to consider when starting your pension.
Do you have any goals?
One of the first things you need to determine is your goal. You need to ensure you take into consideration any plans you may have during retirement. Perhaps you intend to work part time, take up or continue with any expensive hobbies or travel the world. You may have no plans but if you think it’s at all likely you may do, you should aim to include this in your end goal. In other words budget generously.
You also need to consider any costs you have now that will continue into your retirement. You might have paid off your mortgage but what about the costs associated with running and perhaps replacing your car. You may have family members who are still dependent on you.
What’s your budget?
Another factor which is crucial, if not the most important element of your retirement planning is your budget. Realistically how much can you afford to put by each month? Unfortunately once you have contributed to your plan you won’t see it again until you retire. Your pension contributions won’t be available for a rainy day under any circumstance so you should never pool all your savings into your pension. However if at a later date you decide you can afford more or want to pay less most pensions plans have some flexibility when altering your contribution.
What should I contribute?
The minimum you can contribute monthly towards your pension is £20, there is no upper limit. Your level of contribution is however largely determined by your individual circumstances. You will need to take account of any earnings, outgoings and other financial ties. Speaking to an independent financial adviser can help you establish what you contribute to your pot. It is important to remember that your contributions can be flexible and you don’t have to decide now what you will contribute until retirement. Your level of contribution can go up or down.
What risk should I take?
You also determine what risk you attach to your pension. After completing a risk questionnaire with your financial adviser you can establish your attitude to risk before deciding what pension plan is best for your own circumstances. It is important to remember that risk and reward go hand in hand. Although the opportunities for loss are higher with a riskier plan you are also open to much higher returns.
It’s not necessary to decide the level of risk beforehand as you may find after talking to an independent financial adviser there are other things unique to your situation which you didn’t think of before. Although it may be worthwhile giving it some thought so you are ready to ask any questions you need to.
The level of risk you take is also flexible, as with your contributions. What you decide now isn’t set in stone. You may find at a later date you wish to increase the level of risk or as you near retirement reduce it.
What pensions are available?
There are a number of pension plans available each with different levels of risk, charges and flexibility. For a detailed introduction to each pension plan please follow the links below.
This diagram illustrates the costs and options available for the stakeholder, personal and self invested personal pension plans.
