Pensions are a long-term investment and our clients often ask us – how can I choose what my pension is invested in? Keeping an eye on which funds your retirement savings are in, so that you can check you are comfortable with the companies you are invested in and the risks involved, is important.
Workplace Pension and Personal Pension
A pension is either final salary or a money purchase pension. Final salary pensions (also known as defined benefit schemes) are largely funded by employers. You get a percentage of your final pre-retirement salary as an annual income. Money purchase pension (also known as defined contribution schemes) is when the money you pay into your pension plan is invested and what you have at retirement depends on how these investments have performed.
Personal pension plans can also be referred to as workplace pension schemes, trust based pension, group personal pensions, stakeholder pensions and self-invested personal pensions (SIPPs).
With workplace pensions, your money will usually go automatically into your scheme provider’s ‘default’ fund. These are often known as multi-asset funds which mean they invest in a range of different assets, including shares, bonds, property and cash. Most providers offer alternative fund ranges for you to choose from, whether you wish to be Ethical in your investment choices or take more or less risk with your money.
Personal Pensions, generally have more choice when it comes to the type of things you can invest in with a range of risk scales from Cautious to Adventurous.
Where is your pension invested?
Look at where your pension is invested. We would advise to never keep all your eggs in one basket. If you spread your money across a range of different assets, it will hopefully ensure when one type of asset isn’t doing well, the others might make up for it.
When we talk to our clients, we make sure they are happy with the companies that their fund is invested in. If you are in a default fund, it is likely that you will be investing in sectors such as Oil and Gas, Tobacco, Armaments and Alcohol. Are you happy to invest in these sectors or would you prefer your funds to be invested in companies that are being Sustainable and Ethically minded? You have the choice as to how your money is put to work.
For all our clients who decide to review their pension options with us, we review your fund choices at least once a year to check that you are happy with who you are investing with and the amount of risk you are taking and also check that charges haven’t increased.
If you belong to a final salary or defined benefit pension, the income from this pension is related to your earnings when you worked for the employer. This means that no investment decisions have to be made, as these would be made by the company you work for.
For more information about pensions, please read our guide to understanding pensions.
- A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of the pension benefits available.
- Levels, bases of and reliefs from taxation along with the tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.