Everyone dreams of having a fun, comfortable and worry-free retirement life. However, this dream can only be lived when you start preparing financially for retirement, now. Investing in pensions is the most common and useful way to secure retirement. The amount you save for a pension will determine the level of income you can expect to have in retirement. You must consider the pension review option to assess and compare your pensions and confirm if you are getting a good deal.
Let’s help you understand more about how a perfect pension pot looks like that can offer you maximum benefits.
Understanding an Ideal Pension Pot
To be precise, it is difficult to define what a good pension pot means, as it depends on your individual preferences and several other factors. It may include the following:
Access to the Pension Pot
The level flexibility to access your pension pot is an important factor when deciding its appropriateness. Different pension pots have different rules regarding fund access. You must check what your particular pension pot offers, as not all will offer flexible access.
Pension freedom rules initiated in 2015 provided people with greater flexibility of how and when they can access their pension savings. It must be flexible for you to withdraw up to 25% of your entire pension amount tax-free when you are 55 or over. You must be able to access your pension savings while working and use “Flexi-access drawdown” to take payments from the pension pot whenever needed.
Having flexible access lets you nominate who you would want to provide your retirement savings when you die. The freedom to access the pension can also help you use the some or entire pension amount to purchase an annuity, which can’t usually be transferred to a beneficiary.
An employer contribution greatly impacts your total pension saving. If you are working for a business and signed-up for their best pension plan, your retirement savings will be increased due to employee contributions. As per the auto-enrolment rules, the total auto-enrolment contributions should be at least 8 per cent. The contribution can be divided equally between you and the employer, means both have to contribute 4 per cent. Otherwise, if your employer is contributing 3 per cent, you need to contribute 5 per cent. You can also pay more if you’re able to and likewise your employer can contribute more liberally.
Attitude to Risk
A good pension should match your approach to risk, i.e. the amount of risk you are prepared to take with your investments. It should provide you with a vast range of investment options to allow you to pick the ones that best suit your attitude to risk.
A pension provider generally displays a “risk score” alongside the funds they provide to let you check the risky level of each fund. If your current pension does not match your approach to risk, it is time to save yourself from loss.
It is important to check your pension investment preferences frequently to ensure your attitude to risk is still the same when you approach retirement. If you are starting too early for pension saving, you may be prepared for greater risks, as in case of a setback, there will be a lot of time for you to recover investments.
How Much You Invest in a Pension
A good pension pot can be a result of how much you consider to put into it. When deciding your contribution to the pension, you must consider how you can afford it, an employer contribution level, your existing savings, and other income sources you have planned for retirement. For a good pension pot, it is often suggested to invest about 15% of your pre-tax income every year while you are working. If in case you struggle to decide the right contribution, it will be wise to seek professional assistance or free pension advice.
Mostly, an ideal pension will be a result of your own choices and actions. So, ensure to think twice and do all homework before making any move with your retirement or pension plan. You may be able to make the best decisions for retirement planning, but consulting with an expert can make a huge difference. For example, suppose you wish to buy life insurance over 50. In that case, a financial advisor can help you find the best possible plan according to your budget and specific requirements while saving your efforts, money, and time.