There have been lots of changes to pensions in the last few years and it is time to look at them, with a fresh perspective.
Think of them as a tax free jar to put your favourite sweets in. Instead of fruit bon bons, fudge and jelly beans. You have the state pension, ISA Savings, private pensions, work pensions, property,
investments and even that retirement business you’re planning. No longer are you compelled to invest your money in risky funds with dodgy pension advisers!
The situation now is more regulation for the advisers and more freedom for you. Want to put your money somewhere safe? No problem. Want to buy property and use the pension tax-free wrapper? You can do that.Want to sort it out yourself? Go for it.Want an expert on pensions to do it for you? Do it, you can even check out what their customers say about them online.
Explaining pensions to a 6-year-old is what focused my mind.
“A pension is when you have saved up enough money; you don’t have to go to work anymore.”
His response “my parents need pensions”.
My thoughts exactly!.
So why do we put it off?
Well here is a list of some of the pensions available at the moment, with the briefest possible descriptions, to just give you an idea of what they are.
•State Pension (This is from your National Insurance Contributions)
•Stakeholder Pension (A simple, cost-effective starter pension)
•Additional Voluntary Contributions (Additional
payments to some pensions)
•Company/Work Pension (A pension via work, they will likely contribute too)
•Money Purchase Pension (The replacement of the final salary pension)
•Self-Invested Personal Pension (SIPP) (A DIY option including commercial property)
All Pensions apart from the State Pension will ask you 3 questions:
1. How much risk do you want to take, from 1 Low to 5 High?
2. Location of investments made? For example, UK, Europe, Far East etc.
3. Do you have any preference for the type of investments or funds? Bonds, Unit Trusts along with preferences of industries, like mining or technology.
The bad news is there isn’t a right answer to those questions. Only what’s right for you, depending on your age, expectations and the world markets.
Many, many people in finance spend their careers trying to answer them correctly. Traditional wisdom says to start with high risk, which has the most chance of growing, while you’re young and can afford losses. Moving to lower risk options, 10 years or so before retirement, but it really does depend on your personality and your financial situation. Be wary if it sounds too good to be true.
All good advisers will ask you to complete a risk assessment before recommending what to invest your money in and will explain the pros and cons of your preferred choices.
So how do we motivate ourselves to save for the longer term?
Do an experiment.
For 1 week, live, including money for bills on £150.
£150 is the likely state pension, provided you have paid your National Insurance.
Right now you can back pay National Insurance for up to 7 years. Let them know if you have been caring for children or elderly relatives and they may credit you for those years as well.
What to do next?
1. www.gov.uk for a National Insurance statement to see what you have paid so far and whether you already have your caring credits.
2. Increase or start your standing order to an ISA, to build up your long-term savings.
3. Think about how you will thrive in your later years?
4. Tackle that pension paperwork you have been putting off – for motivation, see above or ask for help.
5. Take steps towards setting up a new sweet in your jar. Some pensions start from £20 a month, allow lump sum payments and breaks.
To create a new story about money, book an appointment with Jenny Bracelin, Business and Money Coach at www.jennybracelin.co.uk
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