10 ways to boost your pension

If you find pensions cause nothing but utter confusion these top ten tips will help you find your way through the maze.

Pensions have never been known for their transparency, simplicity or consumer-friendliness. But the fact remains, for many people, they’re still the best way to save for retirement. So don’t let yourself be put off by the ever-changing rules, the scandals and the poor reputation. These ten tips will set you on the right track for negotiating your way though the pensions maze:

1. Choose a low cost SIPP

I think self-invested personal pensions or SIPPs are the place to look if you’re searching for a new pension scheme. A SIPP allows you to take control of your own retirement planning. But don’t be afraid of the ‘self-investment’ tag because they can be as simple as you want them to be. As long as you’re not a speculative or sophisticated investor, a low cost version should give you all the flexibility and investment freedom you need. What's more, you'll benefit from some of the cheapest charges in the industry.

2. Go for low charges

This leads me nicely onto tip two. It’s really important you don’t pay over the odds for your pension. Choose a pricey plan and you could knock as much as a quarter off the final fund value. Low cost SIPPs, including the eSIPP from James Hay and the Sippdeal SIPP, offer great value and don’t charge for setting your plan up or take an annual admin charges. But fund management and transactions charges still apply depending on how your SIPP is invested. You can find out more about how these costs affect your plan in Boost your pension by 25%.

3. Construct a portfolio

There’s no point in going to the trouble of finding a good pension if you don’t then invest it properly. Most SIPPs offer a wide range of assets such as investment funds, bonds, shares, investment trusts, AIM shares and so on. If you’re new to pension investing, start off by investing in an index tracker which is an investment designed to replicate or ‘track’ a particular share index as closely as possible. You can read more about the benefits in Six great reasons to choose an index tracker. You can move onto more exciting investments as you gain more experience if you wish.

4. Choose an appropriate level of risk

You should never invest your pension in a way that makes you feel uncomfortable with the level of risk you’re taking. If you’re relatively risk averse, investing in exotic markets will only keep you awake at night. At the same time, if you’re still many years from retiring, investing in cash-based assets will only constrain capital growth. Remember, pensions are normally very long-term investments so you can afford to take a greater degree of risk than you would with a short-term plan.

5. Decide how much to save to reach your target

Once you’ve chosen how you’ll invest your pension, the next task it to decide how much to save. This should be based on the amount of annual income you think you’ll need when you stop working. This handy pension calculator from Hargreaves Lansdown can help you play around with some figures, and reveal how much you’ll need to put away to achieve your target. To help you calculate that all-important figure, read You can retire on less than you think.

6. Top-up whenever you can

Even though you have already calculated how much to save each month, it’s also a great idea to top-up your plan with extra cash whenever possible. Most people aren’t putting away anywhere near enough, and are bound to be disappointed when they eventually retire. Unless you’re a reasonably high earner for whom the rules are changing (again), you can invest as much as you’d like into your scheme.

7. Consolidate your pensions

If you have been working for some time, you’ll likely have several old pensions from former employers that have been neglected since you moved on in your career. These schemes can be consolidated quite easily into your new SIPP where you can keep a much closer eye on them. When you decide to transfer a pension, make absolutely sure you won’t be losing any valuable benefits in doing so. Take some time to read Why you should transfer your pension to check out all the pros and cons.

Recent question on this topic

• knottyjohn asks:

  Working out a capital/transfer value of a pension.

  • 
    JoeEasedale answered "Ask the pension provider what the transfer value is today...."
  • 
    knottyjohn answered "Not possible I'm afraid, it's an NHS pension and for some reason they are "unable" to supply such a..."
  • Read more answers

8. Keep an eye on performance

One of the key advantages of moving all your pension schemes into one place is how much easier it is to keep tabs on the total value of your retirement provision. In this way, you can ensure your plan is on track for meeting your target income. By checking your pension regularly, you’ll also get an early warning sign if your fund has started to underperform.

9. Keep switching

Don’t forget, if some of the assets in your pension don’t perform well - or look like they might be on the verge of collapsing - you have the opportunity to switch into something new. Within a SIPP wrapper, it’s very easy to switch investment funds or trade shares as required. If you would prefer not to be in charge of monitoring your own pension fund, an independent financial adviser can help.

10. Carry out an annual pension review

Finally, for those who prefer a less hands on approach, do make sure you review your pension strategy at least once a year. This means checking how much growth it has achieved over the last 12 months. Remember, it is neglected pensions that end up generating woeful performance. Your retirement planning is in your hands, so don’t underestimate the important of getting it right. Again if you need extra help, speak to a professional.

More: Why you won’t retire at 65 | How to build a fat-cat pension