Putting money into a Pension Plan is an incredibly important step towards saving for retirement.
People are often reluctant to save into a Pension, or at least save enough to make it worthwhile. I suspect this is because they are not the most exciting things you could ever wish to spend your money on.
Essentially a Pension is asking you to put money into it, not be able to access that money for a very long time, and then hope that you have enough growth on your money invested to provide you with an income in retirement in, say 40 years from now. Wow, where do I sign?
That is too far off for some people to even think about. Most people want to know what they are spending their money on this weekend, or how much to save for their next holiday etc. Saving for something that is not going to happen for another 40, 30, 20 or even 10 years is just not that sexy. And sex sells!
However if you ask most people what they really want, my guess is that ‘to not have to work’ would be right up there. The only way that is realistically going to happen is if you save and invest into something like a Pension, that can eventually replace the income you currently have to work for. Suddenly investing into a Pension begins to make sense. All you are really doing is spending money on something you really want – an income without having to work for it.
Add in the fact that you get a tax rebate every time you invest into a Pension, plus extra tax relief if you are a higher or additional rate taxpayer, then these Pension Plans do not seem that bad after all. You may even want to invets as much as you realistically can, to make it happen sooner.
So then you need to work out what to invest in. After working out how much you are actually going to invest, how you invest that money is the second most important decision. It will have a huge influence on how your Pension performs over the long term. It could be the difference between thousands of pounds at the other end, when you come to retire.
Though this is by no means personal advice, and you should always seek truly independent financial advice before making investment choices, I would say invest in a bit of everything – Fixed Interest (Gilts and Bonds), UK Equity, Global Equity, Emerging Markets, Property, Commodities etc.
However the percentages you apply to each of these typical sectors is the most crucial aspect of your investment choice. Again that will determine how much your Pension value grows and fluctuates over time. That, unfortunately, is something that can only be determined by understanding how you react to different situations, knowing your own personal, professional and financial situation, and testing your desire for returns.
Age is also an important factor. The closer you are to retirement, then the safer you will want your Pension plan to be. Most good investment strategies will start to reduce the risk of your Pension investment when you are 10 years away from retirement. That way you can be more certain about how much you will have and worry less about that value jumping all over the place as you near retirement.