When people think of saving for major life events, the first things that come to mind are usually a mortgage, student loans and a car. Your pension is often a second thought, since saving for when you retire can feel like such a remote, far-off reason that it feels insignificant. Failing to understand the importance of your pension, and how you can make it work for you, can lead to mis-sold pensions and reduced returns on savings. Read on to find out if you have a mis-sold pension or your pension introducer is not getting the most out of your pension.
Who is responsible for your pension?
It’s the law in the UK that employers must provide a pension to all eligible workers. If you work, you probably have a pension. Pensions can come in many forms, and for a lot of organisations, they either run their own pension scheme or use a third party scheme. If you’re not paying attention, you could wind up with an inadequate pension provider that doesn’t get the most out of your money. Your pension is likely your single biggest investment in the market, participating for decades and earning compound interest. Small differences in returns can have significant differences on the results.
How should I invest my pension?
There are many different pension schemes and which one is best for you is highly dependent on your circumstances. There are government backed pension schemes, such as Nest, larger corporations may run their own pension pots, or you might choose to invest in a SIPP or SASS.
Determining the right pension for you should involve understanding several key factors: your intended retirement age, your budget in retirement, how much you will contribute per month and for how long you will be contributing. There are pension calculators available online that can help you factor in additional figures, such as tax relief and employer-matched contributions, if applicable.
What is a SIPP or SASS?
Rather than the “set and forget” type pensions such as Nest or corporate pensions, you can choose to have a more active role in your pension investments. SIPP stands for Self Invested Personal Pension and gives you complete freedom over where your pension is invested. If you’re confident in your ability to invest wisely, these give you the greatest freedom in your pension investments, but they are probably not wise for inexperienced investors.
SASS stands for Small Self-Administered pension Scheme and these are generally smaller pension schemes used by directors of companies and key senior staff. They are employer-sponsored schemes that give the company more discretion on where to invest pension funds. They are generally only applicable to small groups of people and are therefore not that common.
How do I know if I have the right pension for me?
An unfortunate reality is that pensions are a complicated subject, and many people may have been mis-sold pensions. If you think you have a mis-sold pension, it’s important to get claims advice. You may be cold-called by a pension introducer to persuade you to switch your pension scheme.
A pension introducer may not be licensed by the FCA, and many people work on commission, so they have an incentive to get you to switch regardless of if it is in your best interest. If someone has persuaded you to switch pension schemes, it’s important to get claims advice. You may be entitled to compensation and, importantly, still have time to sort out a pension scheme that is right for you and will pay off in retirement.