How can I increase the size of my pension pot?
Tip 1 - Set your Retirement Goals.
Setting goals in retirement, making plans for the future, or planning your retirement – however you describe it, the process of getting your finances in order can be well worth the effort. To achieve your dream retirement, you must establish what it looks like!
Also, it makes it easier to see if there’s anything you should be doing to stay on track and identify how you can improve.
1 - Make some choices about your ‘future'
What would you really like to do when you stop working? Carry on with life without making too many changes? Move abroad, travel extensively or realise a long-held ambition? With more time than you’re likely to have ever had, it's useful to think about the shape of your retirement so you can see how your finances can help you realise your plans. It is likely that your expenditure will decrease gradually over the retirement period.
2 – What is your targeted retirement age
By setting yourself a target you have a clear goal to work towards. It will help you identify any changes that you need to make to make this goal a reality.
3 – Work out what’s ‘going out’, now and in the future
To start with, you’ll benefit from understanding what your outgoings are now and what they’re likely to be in the future. This will give you a timeline, showing how much money you need for the long-term.
Your pension will play a huge part in achieving your goals and objectives. This is highlighted in the following case study.
Summary:
When you invest in equities you buy a small stake in a company with the aim of capital growth, dividend income, or a blend of the two. At Reeves we do not advise on purchasing single shares in companies due to the enhanced risks involved.
We therefore advise investment in equity funds, which is a basket of companies. This reduces the risk immensely and does not rely on the fundamentals of a single company.
Another great feature of equity funds is the vast amount of opportunities and there are well over 9,500 funds available in the market.
Advantages:
- Equities are easily diversified. You can invest in a number of stocks in different countries, sectors, and industries which give you various growth opportunities and diversifies your risk. (Technology, Health Care, Financial companies etc)
- Highest returns - Equities have given one of the highest historical returns among the various asset classes over the long term. If you’re looking for growth in your portfolio, investing in equity is usually the way to go.
- Income from dividends - Many companies usually distribute a portion of its earnings to its shareholders. If you’re an investor looking for passive income, a dividend-growth strategy can pay off very handsomely.
- Equities are highly liquid. Most equity funds trading on a major exchange can be easily bought and sold. This liquidity gives investors the flexibility to convert their holdings into cash quickly if needed.
Disadvantages:
- Volatility – Equity prices can rise or fall sharply because of an overreaction to good or bad news. This volatility makes equities riskier than something like bonds, cash and property.
- Knowledge - It takes knowledge and time to analyse an equity fund. Not to say that having to analyse is a bad thing (this is what separates successful investors from the rest anyway), but it simply requires more time and effort to pick the right funds as compared to picking the right savings plan for your money. This is where the help of a professional can be invaluable.
- Fees – Investing in the ‘best of the breed’ equity funds can be expensive. The most successful equity funds have the ability to charge a higher premium due to their performance track record.
Reeves - The Pension Specialists:
Our views at Reeves on equities as an asset class now is one of caution. As I have mentioned multiple time already, we are worried about the short-term risks in the global markets. However, despite our pessimistic short-term views we understand and believe that over the long term you will achieve growth by investing in equities.
Read on for two examples of the types of equities in the Reeves Tactical Model Portfolios.
Liontrust Special Situations - The Fund can invest in any companies in the UK and Ireland regardless of their size or sector, enabling the managers to find the best opportunities wherever they are across the UK stock market. The Fund Manager attempts to identify companies with a durable competitive advantage that allows the companies to defy industry competition and sustain a higher than average level of profitability for longer than expected.
We are holding ‘specialist’ types of equity funds because their nature, they do not always follow the trends of the market.
Another example of an equity fund in the portfolio is the Axa Framlington Global Technology Fund. The fund’s objective is long-term growth, principally through investment in companies engaged in the research, design and development of technologies in all sectors. The fund has a wider remit than traditional technology funds and also includes sub-sectors such as internet advertising and online recruitment. The manager favours companies entering a period of accelerating growth and therefore has a bias towards small and mid-cap stocks. The fund invests worldwide but typically has a strong bias to the US.
Both funds, have done exceptionally well over the long term and have been a great asset in our investment portfolios. As you can see, they are very different.
Tip 2 - Review your Pensions regularly.
Have you ever planted anything in your garden? If so, you probably kept an eye on its growth, watered it and dug out the occasional weeds that threatened to smother it.
Had you walked away and come back many years later, you wouldn’t be too surprised to find it wasn’t faring too well. But that is exactly how millions of people treat one of their most important assets – their pension. They take the important first step of setting up one, but then fail to follow this up by making sure their pension is prospering.
1 in 4 people have NEVER reviewed their pension plan, according to research. This will not affect their daily lives while they are still at work, but it could have serious implications for their comfort in retirement. Keeping a regular eye on a pension can help ensure it is on course to provide the retirement income needed.
Tip 3 - Do you need any support?
The next key step is for you to make that decision whether to go alone or working with an adviser. We call that deciding your advice support needs.
If you’re facing a big decision on which a lot of money depends, advice can be invaluable. Things, like setting up a pension, buying a home or planning for retirement, may be rare or even one-off events, so you will probably have very little experience on which to base these crucial choices. And though you may seek guidance from friends and family, or online, neither of those can give you as much confidence as unbiased advice from an experienced professional.
We believe there are 3 common factors that you should take into consideration when making your own decision on whether you have that capability to manage your investments without some additional help.
Expertise - do you have the knowledge to make critical investment decisions. Are your confidence in your ability to carry out your own research and have the conviction to act on your findings.
Time – do you physically have the time in your life to dedicate to the management of your portfolio and make those decisions when market conditions suggest so.
Motivation – Do you have the desire to manage your investment day to day?
A financial adviser will do much more than simply tell you where to put your money. The whole point of advice is to make your money work for you and help you achieve your goals in life. So, a good adviser will look at your circumstances as a whole, from your current situation to your medium and long-term future, to help you decide upon the best action to take.
For example, if you want advice on how to access your pension, your adviser will first take time to discuss your plans for retirement, and so assess your changing income needs over time. Only then will they start to recommend strategies and products.
Last but not least, an independent or whole-of-market financial adviser can find the most suitable products for you from all that are available – something no comparison site can do. They will also ensure that the chosen product is the best possible fit for your particular circumstances.
Tip 4 - Think about consolidation
It can be difficult to keep an eye on how pensions are doing if they are held with a number of different companies. Many of us accumulate pensions through the workplace, and when changing jobs we leave behind a trail of separate pension pots. These may be easier to manage if they are consolidated.
This can be done by transferring them together into a personal pension normally held on a modern trading platform.
An added benefit an investor may seek is online access to their pension, so they can monitor it and make changes as often as they want at the click of a button. Some pensions can even be managed through a smartphone or tablet app.
There are pensions it may not be wise to transfer. For instance, defined benefit (e.g. final salary) schemes promise a specified income in retirement or other schemes might offer a guaranteed growth rate on the pension fund.
Where such a pension is worth more than £30,000 investors will be required to take advice before transferring. Pension schemes which provide a guaranteed annuity rate that will be used to convert the pension pot into an income at retirement may not require advice to transfer, but the scheme should explain the benefit of the guarantee.
If an employer is paying into a current workplace scheme then it normally makes sense for that to remain where it is too, otherwise the employer contributions may stop.
Before transferring, an investor should always check they will not lose any valuable benefits or guarantees or incur excessive exit fees.
Pensions are usually transferred as cash, so will be out of the market for a period.
We have produced a full webinar on the pros and cons of pension consolidation, which you can find in the resource section in the top right-hand corner of your screen.
Tip 5 - What is your risk profile?
The strategy that you are going to adopt and the investment decisions that you make will be primarily based around your investment attitude to risk and your capacity for loss. And how the to interchange.
It is really important that you fully understand investment risk, so I will give you a few statements that will help you decide the risks that you are willing to take yourself to achieve some growth.
1- The higher you go on the risk scale, the greater the range of outcomes. And that works both ways, positively and negatively. It’s very important that you understand that.
2- However, without taking some sort of measured risk, there is no investment growth.
3- Decide what rewards you want and what level of risk you are willing to take to achieve your goals.
4- Past performance is no guide to the future, future investment returns are unknown.
Do you have a question? Email us at info@reevesifa.com.
It is important that no actions should be taken without first taking advice. Personal circumstances and an individual’s appetite for risk means that the advice for one person may not be the same for everyone. Reeves do not advise on Defined Benefit pension schemes. Reeves do introduce a third party specialists in areas of work we do not cover. Reeves run an advanced investment portfolio management service on an advisory basis only