It’s that time of year again when anyone and everyone extols the virtues of establishing a mountain of New Year Resolutions. Regular date nights with your partner, more visits to the gym, shorter working hours… the recommendations are never-ending. They all sound great, but the reality is that most will not see the month out.
So rather than adding to the stress, I want to keep things simple for you. Instead of reeling out a long list of time-consuming tasks, I’ve distilled my list of New Year Financial Resolutions down to just five things. Keep these front and centre and you could find that 2018 turns out to be your best financial year yet.
1. Get control of your pensions and investments
Get yourself an investment platform that allows you to manage all your investments from one place. The average person will now work for 11 different companies during their career. That could mean 11 pensions to track and manage – an almost impossible task. No wonder there’s an estimated £4bn in lost pension pots in the UK.
The danger is that you forget about old pensions and your money ends up sitting in expensive, poorly performing funds. Bringing them together under one roof gives you a chance to take control and start working towards your retirement goals.
Remember you can’t manage what you don’t track so start off the year by putting yourself into the driving seat.
2. Get as much into your pension as you can
As a bare minimum, max out your employer’s contributions into your company pension if you have one. You’ll get the double benefit of free contributions plus the extraordinary perks of a tax-free savings environment.
You can invest up to 100% of your annual income into a pension every year. Consider also adding any other spare cash into your pension to take maximum advantage of any tax relief available. As a higher rate taxpayer, your pension will get a 40 pence boost for every 60 pence you contribute. That’s an immediate 67% gain! Not a bad result.
If you think you’ll be able to make regular extra contributions you might want to investigate setting up a salary sacrifice arrangement with your employer. Depending on your personal circumstances, you might be able to increase your pension contributions without changing your take home pay.
3. Use your annual ISA allowance
You might want to access some of your investments before the age of 55, the earliest time at which you can withdraw money from your pension. Paying university fees is a typical use for this cash.
You have until 23.59 on 5th April 2018 to use up your ISA allowance. Remember that your spouse and children can also invest in an ISA.
Investing through an Individual Savings Account (ISA) will make sure that you don’t pay tax on any gains that you make on your savings made outside your pension wrapper. For 2017-2018, the maximum ISA contribution limit is set at £20,000. Make sure you use it. Remember that your spouse and children can also invest in an ISA, although the limit for a Junior ISA is set at a lower level.
4. Don’t put up with low returns and high charges
Investing in pension funds with higher management charges is fine if they’re providing superior returns. But that’s not true if your pension fund’s performance is lack lustre. Be sure to check how your funds have been performing and switch to an alternative pension provider if appropriate.
The impact of high fund charges and poor fund performance shouldn’t be underestimated. For example:
• Someone with a £100,000 fund invested for 30 years that achieves annual growth of 5% and a charge of 2% will build a pot worth £230,000.
• The same money invested in a fund achieving 7% growth with total charges of only 1.5% will grow to be worth more than double (£480,000) the lower performing fund.
While a better return can never be guaranteed, if you can achieve a greater investment choice and lower fees by moving your pensions, it’s certainly worth considering.
Improving the investment performance of your pension fund and watching out for high management charges could double the value of your investment over a 30 year period.
5. Be realistic about what you can do
It’s very easy to underestimate what it takes in terms of managing your pensions and investments. Consider getting an expert to manage your portfolio for you if you don’t think you’ve got the time, desire or expertise to do it yourself.
Our Portfolio Management Service provides the ongoing advice and support necessary for our clients to achieve the retirement they want.
They feel in control of their pensions and investments and know where their retirement money is held and understand why it’s invested the way it is. They know exactly how much they’ve got saved. And they know it’s safe to get on with their lives whilst we look after their investments in the background and on their behalf.