Should I invest in a private or employer's pension?
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I’ve been a member of my employer’s pension scheme for about 10 years now. I’ve just been promoted and my salary has increased so I have some spare income. I’d like to put more into my pension each month but wonder if I should put it into my employer’s scheme or start a private pension separately. What do you think?
Richard Barker of Smith & Pinching responds:
There isn’t a straightforward answer to this, I’m afraid – it depends on a range of factors. To advise on this, we need to consider every aspect of you and your financial circumstances including your age, your family, your retirement aspirations, your income and expenditure. A key factor to establish is what level of contribution is affordable for you both now and in the longer term.
We would also need to examine your workplace scheme to see if it has the potential to deliver the right performance to meet your retirement goals, comparing it to other options out in the wider marketplace. The flexibility of your workplace scheme is something else we’d need to investigate: some workplace schemes offer limited investment choices, for example.
Benefits and fees are further factors to add to the mix: some older workplace schemes have higher charging structures than may be found in new schemes, whereas others have valuable guaranteed benefits. Another aspect is if your employer may be prepared to match any further contributions from you, which would enhance your retirement fund and be of valuable benefit.
Once we’ve collected all the information together, we can start to put together a financial plan that puts you on track to where you want to be at the start of your retirement. We can use lifetime cashflow modelling to demonstrate the impact of different scenarios – such as changes to income and expenditure at different points in your life – on your pension savings.
It’s important to remember that pension savings can’t be accessed until you reach the minimum retirement age, currently age 55. You may wish to build up other savings and investments that would allow you to meet goals that may be due to happen before you reach that age, or to provide emergency funding.
I suggest you meet with an independent financial adviser from a firm of Chartered Financial Planners to put together a cohesive financial plan covering all aspects of your financial life. This plan will enable you to be in control of your money: you should review it and adjust it regularly to ensure it is on track to deliver what is needed at each stage of your life.
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Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk