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Get your pension in shape

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Are your pension plans on track? asks Annie ShawMake 2016 the year you super-charge your retirement plans, says financial journalist and media commentator, Annie Shaw 

Are you as pension proud as you are house proud? Are you sure your financial plans are as streamlined as your post-Christmas waistline – or are you at least doing something about the shortcomings?

You’ve presumably restored order to your home after the Christmas festivities. You may even have joined a gym or started a diet to get rid of the excess inches. So now – whatever your age – it’s time for a makeover of your retirement plans.

Pensions have never been so important in our lives. Once a pension scheme was just something you barely thought about as you filled in the forms in the HR department on your first day in a job. Now, with a seemingly ever-rising state pension age, it’s important to make sure your savings are shipshape so you are on track for a comfortable retirement.

Are you a member of a pension scheme?

If not, you probably should be. Of course there are exceptions, but most people would benefit from being a member of some sort of retirement savings scheme. If your employer offers a scheme - and with auto-enrolment, even the smallest employers must soon sign you up into a pension – you should generally remain in it, even when given the choice to opt out. 

Your employer will contribute to the scheme too, and you will generally obtain tax-relief on your own contributions. Not being in the scheme is not only putting your retirement in jeopardy, but you are turning down the gift of free money.

People who are being signed up to pension savings for the first time may have very low contribution levels to start off with. The rules require these to increase gradually over time – but, once again, these are minimum amounts and you should try to save more if you can.

What if you are not employed? 

Perhaps you are self-employed, or you are spending time out of the workforce looking after your children, but you nevertheless have access to money you can put aside. In this case consider taking out a personal pension plan. Even non-earners can contribute up to £3,600 a year (after tax relief) without reference to earnings, and earners can save more. 

Alternatively, you may wish to save in another vehicle, such as an ISA. The important thing is that you are thinking about retirement saving at the earliest opportunity. 

You already have a pension – can you just leave it be?

The short answer is no. Pensions are like gardens – they need tending, weeding and restocking. You need to review what you’ve got on a regular basis and see if you can make improvements.

Think about how much you are saving and what kind of lifestyle you would like to lead in retirement. There are calculators on the internet that will help you understand how much you need to save, and it should be easy to see if what you are saving now is enough. 

In many workplace schemes employers will match the amount you pay in up to a certain limit. The matched amount should, however, be regarded as the minimum that you ought to be paying in. Even if your employer won’t match the whole of your contribution you will still be getting tax relief to boost your saving. 

Look at performance and charges 

If you have control over where your money is invested, either via your company pension scheme or your own pension plan, keep an eye on the funds the money is invested in. 

Depending on your understanding of investments and your tolerance for risk, you may be able to get better performance simply by switching funds. Alternatively, you may want to take a more cautious approach, so that you don’t risk losing out if the stock market should take a tumble.

You may also be able to boost your pension pot simply by paying less in the way of charges. If you are in an older plan there may be fees like initial charges every time you make a contribution, fees if you stop making contributions and exit charges when you take money from your fund. 

You should consider taking professional financial advice to see if swapping to a different plan would help.

Consider how you will take benefits

As you approach retirement, consider how you will spend the money you have accumulated. This isn’t a matter of whether you want to go on holiday or redecorate the spare room, but how you will access your cash. 

Will you buy an annuity – a type of insurance policy that gives you a secure income for life – or will you draw money off your fund bit by bit, either when you need it or on a regular basis?

There are pros and cons to both. Annuities may seem expensive, and if you die young you may turn out not to have made the most of your cash. Equally, drawing money from the fund leaves you at risk of the cash running out. 

Which is likely to be suitable for you? Or maybe you will hedge your bets and buy an annuity with half and draw down the rest?

An adviser can help you to decide and, whichever you choose, help you to pick an annuity that pays the best rate, particularly if you have health issues, or devise a plan to draw your money in cash without fear of it running out.

Remember that only 25% of your fund can be taken as cash without paying tax, and if you take the lot at once you could be left with a big tax bill. 

Likewise, watch out for scammers promising better returns, which in reality will simply rip you off. Always take professional financial advice and never respond to cold calls, mailshots or recommendations from ‘the man down the pub’.

Back to ‘Retirement planning for families

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This article has been commissioned by retiresavvy and any opinions voiced are the author's own.

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