For many, saving into pension pots becomes an almost passive task, spanning decades, and automatically dealt with by someone else. We might not even see or bother to access the pot we accumulate across different jobs.
Many of us might have pinpointed a year we want to retire or a figure we’d like to have ready to supplement our income. Workplace pensions are a great option to start with. Fixed, automatic payments with employers often match contributions and tax breaks, depending on when or how you choose to withdraw your pension.
However, a lot of things can change over a lifetime. Contributions can fluctuate easily if we take a work hiatus, or pause contributions for shorter-term gains. Because pensions are so important and sometimes difficult to manage.
It’s no wonder two-thirds of people make additional plans besides their workplace contributions to building better pots, allowing them to live more comfortably or even retire earlier than planned. Here are some tips on how to construct a better pot to meet your ambitions.
Think Outside The Pot
Pension pots are often some of the most conservative styles of investment accounts, designed to accrue smaller increments over a much longer period. However, it doesn’t have to be your only form of investment.
It’s often recommended to invest in your twenties when you’re actually able to take on more risk in investing, compared to later stages of life. Looking into opening an investment ISA is a great way to put your money to work in a tax-efficient way. Finding the best investment ISA for you isn’t a struggle either, because there are many different ISAs available to you. For example, LISAs (Lifetime ISAs) are designed to be withdrawn closer to retirement age, with slightly more leniency towards more aggressive investments. Other ISAs let you invest in the markets.
One of the main issues with tracking and appreciating the growth of a pension pot is that so many of us have several pension pots that are all invested differently, making it difficult to have a confident overview of them all.
That’s why it can be a great option to holistically combine them all into one manageable place via pension transfer. Platforms like Pensionbee have been offering this service alongside the ability to choose investment styles, from ethical investments to aggressive, short-term approaches.
It’s basic psychology in one sense; having that single figure you can check in on, and watch grow is a lot more rewarding and easy to rally behind than pulling together separate figures from random pots. Not to mention the effort of remembering all those passwords!
Keeping It In Cash
Interestingly, cash savings are actually a great way to save for a pension. A third of people will earmark some money in cash ISAs both for the level of protection these accounts have, as well as the suitability if you’re planning on retiring in a few years’ time. The downside of cash ISAs or basic savings accounts is that the rate of growth is dependent on interest rates, which can slow down and cannot meet the rate of inflation. The biggest risk is your cash dropping in value depending on interest rates.
Pension pots don’t have to be invisible things that we ignore on our payslips every month. They’re a vitally important financial vehicle for your future and can be as actively managed as saving for a first home.
By understanding your risk appetite, targeting a retirement age, and maintaining good visibility over your pot size, you can make your future financial aspirations a part of your present.
Interesting Related Article: “Looking to Transfer Your Pension?”