How to fall in love with your pension again!
Harvey Jones asks how can you expect your pension to care for you in later life, if you don't care for it?
The relationship you have with your pension is one of the most important in your life. Your partner may move in with your best friend, your kids might disown you and your dog run off, but your pension should always be there.
So why do we treat them so badly? One in four people couldn’t care less about their pension, according to new research from Standard Life. One in three can’t be bothered to find out where it is invested. How can you expect your pension to care for you in later life, if you don’t care for it?
A pension is a long-term relationship, and like many long-term relationships, it is easy to take it for granted. You get stale. It happens to the nicest couples. Somebody needs to bring the two of you back together, and that task has fallen to me.
So here is my advice on how to put the spark back into your pension.
Spend more time together
Get to know each all over again. Tell your pension what you want from this relationship. When do you want to retire? How much income would you like? How much do you need to invest each month to get that income? What can you afford? Then interrogate your pension in return. Where is it invested? How well has it been doing lately? Would it be happier elsewhere? This takes time and effort, but don’t all relationships? In the longer run, it is worth it.
Remember its anniversary
Luckily, you don’t have to make a note of your pension’s anniversary, your provider should do it for you. Every year, you should receive a letter setting out how your pot is today, and what it has been doing over the last 12 months. It will also show you how it is likely to look when you are 65. An anniversary is a time for reflection, so dig out your latest statements, work out where you and your pension are heading, and how you can get there together.
Ed Bowsher reckons you shouldn’t just rely on the state for your pension.
Lavish money on it
If you have stopped paying attention to your pension, it is time to lavish a bit of love on it. No need for candlelit suppers, what it really wants is a regular monthly contribution. It’s the little things in life that mean so much, and even £20 or £50 a month can bring the romance back. The more you give, the more you will get in return (more tax relief and annuity income). As the Beatles sang, the love you take is equal to the love you make. That applies equally to your pension.
Be a little promiscuous
Your pension isn’t a monogamous relationship. In fact, it’s better to spread the love around. So don’t save all your loving for your company pension, try playing away with a stakeholder, or better still, have a fling with a tax-free cash or stocks and shares ISA (and even a bit of property on the side). Many people are reluctant to commit to a pension at all, because they don’t want to end up shackled to an annuity for life. That’s fine, provided you’re getting some love elsewhere.
Recent question on this topic
- scatterbrain asks:
I have two stakeholder pensions which have dropped in value over the past two years. Scottish Widows and NPI. Should I merge them; are they worth it?
- MikeGG1 answered "If they are both Stakeholders then you can ignore the inflation related aspect. What you have..."
- Read more answers
Give it time
Unlike most of us, your pension will look better and better with age. We all put on a little weight as we get older, but that only makes pensions look more attractive. Will you still love your pension, when you’re 65? You bet you will, more than ever. But unless you have nurtured it carefully, it won’t think so highly of you.
In sickness and in health
Your pension looked wonderful in the beginning, with its fancy tax relief and sexy growth projections, but somehow things went sour. High charges and lousy performance can sink any love match. As in all long-term relationships, it isn’t all plain sailing. You might fall for a Mr Wrong such as Equitable Life, or your dreams may be shattered by a mis-selling scandal. But don't give up on it, you can still make it work. Just remember, this relationship is for life - 'til death do you part.
If you’ve lost that loving feeling for your pension, it’s time to get it back. It may take a bit of time and effort, but like all long-term relationships, this one is worth fighting for. Ultimately, it’s up to you.
More: What the BP oil spill means for your pension | Boost your pension by £130,000 before you retire
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Interesting. Have a rec.
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OK liesarenocomfort, for better or worse, here's my view. £25k means firmly in the lower tax bracket. It also means probably relatively little to save into a "pension" - whatever form that may take. One of the golden rules of investment, is [i]never[/i] invest for a tax break alone. If it happens that the investment you're looking at stands up on it's own and there is a tax break attached; great. Treat it as a bonus. Right now, the stock market can only be described as perilous. It is (in my view), very likely to retract further than the so called crash of 18 months or so ago. So I would not be looking to save in anything at present that is stock market based. I have a pet golden rule of my own; keep control of your cash. By that I mean, do not hand control to anyone else where you cannot in the future regain control. That rules out pensions totally. Once your cash disappears into a pension, you no longer control it. You are immediately captured by the insurers, not only of the funds, but in terms of annuities later on. As has been pointed out elsewhere, charges crucify performance. Therefore, whatever you choose to go with [b]must[/b] have low costs. Right now, although it sounds really boring and unimaginative, I would find the best cash ISA you can find and put as much in it as you can afford. At this time, it's all about protecting money and minimising losses. The only loss you will suffer in an ISA is due to inflation. Alternatively, you could go for an index linked bond from the Post Office, which may actually out perform an ISA at present. You need to crunch the numbers and look at safe alternatives. The problem may be for you, a bond requires cash as a lump sum. If you're looking at a monthly savings type deal, the ISA option may still be favourable. For what it's worth, I've advised my own children to do just that. Looking at it slightly differently, if you could manage the maximum over a ten year period, you would have saved £51,000 + whatever interest it has generated - don't forget the magic of compounding. That (even today) is a significant amount of money and will have remained safe throughout. Just remember the investors compensation scheme limitation and spread the cash around. Once you have the backing and security of a substantial cash pile, then you can consider moving up the investment pyramid to the next risk level. I accept you're not going to see double digit growth, but the chances are, if you put it in a stock market investment, you will see significant losses before the year is out. Under the present rules, a small pension is simply not worth having, in fact, it's a liability. With cash ISA's you still get the tax break, albeit in reverse. In spite of my dislike of pensions, I think it is imperative people save for old age. The debate is not about whether we should all save, but how we go about it. Please accept, the above is my personal view. I am not a financial adviser, and therefore cannot legally give advice and nothing I have wriiten should be construed as such.
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Okay, scratch the above debate for a minute - it's all getting a bit tetchy. I'm genuinely curious, if you were advising a 25-year-old, with a secure-ish job (but no employer pension) earning say £25k p.a, who asked you how best to save or invest for retirement (or whether to bother at all), what would your best advice be? LastChip? Honda?
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01 July 2010