How to Boost Pension Growth 10 Years From Retirement
- Work out the income you will need in retirement. Try to assess how close you are to achieving that. And then work out what you need to do to close the gap if there is one. Ignorance is not bliss.
- Try not to think solely in terms of pensions. Think in terms of income in retirement. This may come from, yes of course the state pension, private pensions and company pensions but also income from let property, the returns on your savings and investments or downsizing your house to release equity from which to take an income or lump sums. In other words all kinds of sources. Try to assess your overall needs and your overall situation to have a true understanding of your situation and choices.
- Will you be an annuity buyer or a drawdown retiree? If you are likely to be taking all the money out of pension funds to purchase an annuity then as you edge closer and closer to this date you should consider reducing the risk profile of your pension. This is sometimes known as 'lifestyling', often involving putting one fifth of your pension pot into a cash-based fund each year for the last five years before you purchase an annuity. This protects you from significant downturns in the market at a point when you do not have much time to recover from a fall. On the other hand if you are likely to remain invested in drawdown then you may feel able to tolerate downturns as well as enjoy upturns in the market. Over time the market does historically tend to increase and so staying invested should over time results in gains. It is mostly in the short term where these risks may become intolerable. So consider this: is your likely choice at retirement annuity, drawdown or something in between? Use this information to help inform your investment fund selection and keep reviewing this year in year out.
- With 10 years to retirement it's not too late to move the hotch potch of pension pots you may have scattered around, often in orphaned or zombie pensions with high charges and low performance. An independent advisor will help you to assess these schemes against the open market to see if, even after charges, you may be better off consolidating into better alternatives. This same process should allow you to assess what income in retirement you are likely to be able to achieve and make any necessary decisions to fix any shortfalls.
- Don't delay. 10 years retirement is not too late to make significant decisions which will help you for life. As important as performance, charges, contribution levels etc is the length of time pension contributions are made.
- Don't be fooled by the property versus pension debate; it is a bogus debate. Property is a type of asset. A pension is a tax wrapper. If you believe (wrongly) that property is the only asset which you can be sure of making money from, then you can invest in property within a pension and achieve the spectacular tax efficiency therein. For a basic rate taxpayer £1 contributed into a pension becomes £1.25 overnight. For a higher rate taxpayer figure is £1.66. This can be in property if so desired in a low-cost low tax environment. In truth over time equities have performed better than property and most sensible is a spread of investments across a range of assets including corporate bonds and government gilts as well as property and equities, both UK and global. Don't let celebrity property shows mislead you. Spread your retirement investments in accordance with your attitude to investment risk and reward.
1 May 2015
The views expressed in this blog do not in any way constitute advice and are specific to the date noted. As time passes the facts can change and readers should consult their adviser for up to date advice on any matters covered within the blog. Invest Southwest offers an initial review, which is free of charge, however long it takes. From this we will be able to confirm how we can help and give you an opportunity to decide if you would like us to. Thereafter, we will provide you with detailed recommendations and exact costs. Please note that we promise not to levy any kind of fee unless we can demonstrate a benefit to you.