It helps to think of your pension as simply a long-term, high-growth, tax-protected savings account. The final balance will depend on the contributions you pay in, and also on how well the investments perform. You should therefore review your pension regularly to check it is growing at the level you need – and make adjustments if it isn’t.
How often should you do this? If you have more than ten years until retirement, then once a year is enough. Checking it more often than that can worry you unnecessarily, because pension funds naturally fluctuate up and down in the course of a year. Don’t take too much notice of short-term falls, because what you are looking for is an overall upward trend.
What else are you looking for? Broadly, you want to know if your contributions and the rate of growth are likely to deliver enough money to meet your needs in retirement. If this looks doubtful, then you can address either or both of these factors. You can try to increase the size and frequency of your contributions, and you may also consider moving your pension to different investments. Another decision to make is whether you want your funds to be passively or actively managed (active management costs more and brings more risk, but also has greater growth potential).
How do you choose the best investments? You should ask your financial adviser about this. Broadly speaking, if you have more than ten years to go before retirement you can afford to take higher risks in the hope of greater growth. As you near retirement, you may wish to move your money into lower-growth, safer investments – but then again, you may decide to leave some or all of your fund invested so that it can generate an income for you. The broader range of options under pension freedom mean that ongoing advice in this area is vital.
Whether you’re approaching retirement or still some way off, you can benefit from a free pension check from a regulated adviser.
Questions you might like to ask an IFA:
- What’s the predicted final size of my pension pot, all things being equal?
- What could change between now and my retirement, and what should I do about it?
- How could my options under pension freedom influence the decisions I take now?