I first met Keri when my late husband sold his company shares and we turned to Broadway Financial Planning for investment advice. Keri quickly impressed us with her vast knowledge and understanding of the financial marketplace and global economies.
If you are already a part of a work place pension or if you’ve just started a new job, it’s a good idea to get a better understanding of the scheme they are offering. We believe that the following questions are important and could make a significant difference to your pension:
Your attitude to risk is crucial when it comes to investing. The different financial products which make up a pension scheme’s investments carry different levels and types of risks. More risk means that there is greater potential for profit and a higher eventual retirement fund, but there is also a greater potential for loss. Financial products which carry less risk may be more secure and less likely to fall in value but this often comes with lower returns. It is worth asking if you get to choose a level of risk for your pension investment or whether they have just one set package that all employees are enrolled into.
Some employers may offer Self Invested Personal Pensions (SIPPs) which would allow you to choose and manage your own investments. While this type of pension isn’t for everyone, it would be worth enquiring about if this is something that you would be interested in.
Ask your employer if they use Salary Sacrifice. You can reduce the tax you pay by giving up part of your salary and directing it to your pension instead.
By essentially giving up a portion of your salary, the amount you get paid is reduced – which decreases the amount of income tax and National Insurance you pay. The National Insurance contributions your employer makes will be reduced, too.
This means that more of your money is being spent on things that benefit you – like your pension – and less taken through tax.
If you are automatically enrolled into a workplace pension, your employer has to make contributions up to a minimum level, currently 2% for an employer and 3% for an employee. However, many employers will offer a contribution above the minimum level, so it is worth asking.
It’s also worth asking if they offer a ‘matched contribution’. For example, if you paid in 5% of your salary each month, the company would match this and also pay in 5%, taking you to a total contribution of 10%. The recommended monthly contribution for a decent retirement pot is between 10% and 15%, but this will depend upon many factors including the age at which you first start pension saving.
While workplace pension schemes usually have lower charges than individual schemes, the amount and type of charges can vary from provider to provider and from scheme to scheme. It’s important that you understand the charges that apply to your pension scheme and the effects that these will have on your retirement pot. These fees can seriously erode the overall value of your retirement pot so ask up front what kind of charges are on the fund.
There are different types of workplace pension schemes with different benefits. It’s important to understand what benefits are available to you as a part of your plan as you could lose these should you break the conditions of your pension. Additional benefits could include life cover, critical illness cover or even support for your partner if you die.
At BFP we understand that pensions can be complicated so we hope that the above questions help clarify your understanding of what a work scheme can offer.
As always, please contact BFP if you’re concerned about your pension or planning for retirement.
Trainee Financial Planner