When you start working, you mainly think of buying a car house and having some savings for a rainy day. After a few years or employment, or self-employment, you’ll start hearing people talking about pension1 plans. For most people, the topic of pensions isn’t a favourite because it’s a reminder that you’re ageing. As much as you may want to ignore this fact, time is moving and, therefore, saving for your retirement should not be a topic you run away from.
So, that begs the question, how do you choose a pension and which type of pension plan is the best for you?
So First And Foremost, What’s A Pension?
A pension plan is an essential saving pool to which you or your employer contribute for your retirement years. Once you attain the retirement age, which is typically 55 years, you can draw out the whole amount or organize to have this money paid to you as a monthly stipend.
The concept of pension schemes has been around for a long time and is available to both employed and self-employed individuals. In some cases, the employer is obliged to make contributions while the employee can volunteer a certain amount. In other instances, you find that a specific amount is deducted from the employee, and the employer is obligated to match that amount.
The best thing about pensions is unlike other long term savings plans; they attract a particular amount of tax relief2.
How to Go About Choosing A Pension
At this point then you’re defiantly wondering how to choose the best pension option. There are various things you’ll need to consider, and these have been broken down below:
The Investment Options and Risk Management
Pension plans are long terms savings, and therefore in most cases, this money is invested in different ways. It allows your savings to grow. You should make a point of finding out how the funds will be invested. Doing so will allow you to determine whether you’re okay with the investment options form a political, ethical or even religious point of view—the more diverse the investment options offered to you, the better.
Additionally, it would help if you asked about their risk management strategies. It’s a must-have conversation because all investments carry some level of risk, whether high or low.
Their Reputation, Past Performance and Future Projections
Your pension isn’t something to play around with, and you, therefore, need to be sure the right people are holding it. That being said, you need to do your research and ask around about different pension providers. What you find out will give you some insight on how the pension has been performing in the past years. When you narrow down your options, and start paying visits to the different pension providers, ask them about their future projections. It’ll help you narrow down the pensions that seem to be conservative and those that are risk-takers.
Contribution Limits and Fees
You’ll notice that some funds will limit how much money can go into your account monthly while others may not. Remember that these limits might be the minimum or maximum amount. According to your cash flow, you might also need to keep in mind that some pension plans will only allow monthly payments while others might also accept lump sum3 deposits. Therefore, it’s important to know because who knows when you might get a windfall.
While finding out about how to make deposits, be sure to also inquire about any fees or deductibles that may be applied. In most cases, these are the details that are written in the fine print. Sometimes the pension you choose may deduct a monthly or annual amount form your pension contributions. You might also incur charges if you leave the pension scheme before the agreed-upon date.
The Account Management Options
When you set up a pension plan, you should have a way to monitor it. A few years ago this could only be done by visits to the pension office. These days, however, most providers are also offering an online option. It can allow you to monitor the account and make deposits.
Choosing a pension plan isn’t rocket science. However, it would help if you made a smart decision. Therefore, if you’re not sure about the type of pension plan you need, a workplace pension, state pension or personal pension scheme, you should try and consult a reliable pension advisor or pension company to guide you. It’s a secure way to ensure that you make an informed decision.
Various factors will need to be considered when choosing a pension fund. The main factors among these include the contribution limits (maximums or minimums), the funds’ investment and risk management strategy, their past performance, future projections and also their options on fund management and accessibility.
Well, how to choose the best pension plan heavily depends on your needs. If you work for the government, then the State Pension is the best pension scheme for you. However, that doesn’t mean that you can’t invest in a workplace or personal pension fund. Some of the best pension providers in the UK that work hard to offer you the most favourable pension schemes include:
- True Potential Investor Pension
- AJ Bell Youinvest Pension
- PensionBee Pension
- Hargreaves Lansdown Pension
- Aegon Pension
- Alltrust Services Limited Pension
- Advance by Embark Pension
- Ascentric Pension
- Amber Pension
Well, how to choose a pension plan for your needs can be daunting but not as confusing as choosing the right pension investment advisor. It might seem like rocket science at first, but selecting the right pension advisor is easy. All you have to ensure is that you:
- First, determine if you do need a pension advisor
- Consider the professional you want to work with – do you need an online advisor or the traditional financial advisor?
- Do your due diligence and request for some background information
- Set up an introductory meeting or virtual conference
- Last but not least, ask the advisor their terms and conditions, as well as their price rates
If you opt for personal pensions, there’s no limit to the number of pension schemes you can have. The limiting factor will most likely be the amount of money you can put in the different plans annually if you want to receive the tax relief benefits associated with pension funds.
Not all employers will offer you a pension plan. For your benefit and peace of mind, it’s essential to start thinking about your sunset years. Choosing the right pension fund ensures that you can still live in comfort once you stop working full time. Therefore you might strongly want to consider investing in the right fund the earlier, the better.