If you are in a workplace pension scheme, then the mechanics of saving for a pension should be fairly straightforward in that you can make pension contributions directly from payroll. If you are not, then there are alternative ways of making pension savings, such as saving via private pensions. Even if you are in a workplace pension, it’s worth remembering that workplace pensions are just one vehicle for retirement savings. You can save for your retirement in other ways as well as having a workplace pension. Whatever approach you take, there are five basic rules which can be applied to most, if not all, situations.
Get control of your spending in the present
Ideally you want to enter retirement minus debt and plus savings/investments. Even if you know this is unlikely to be possible (for example, you will still need to pay off your mortgage), you want to get as close to this scenario as you possibly can. That means keeping a grip on your spending in the meantime. Please note that doesn’t mean you have to forego all life’s pleasures for the sake of filling your pension pot as full as it can possibly be, but it does mean being mindful of your long-term future when you take financial decisions.
Make a plan for now and into the future
We’ll skip the clichés on the importance of planning and just stick to saying that a solid financial plan can form the basis of good financial decision taking both in the present and in the future. The importance of having an effective plan in place for retirement is arguably so great that it is worth taking professional advice to put one together. For the sake of completeness, professional advice does not mean that you are going to be railroaded into doing whatever the professional thinks is right, at the end of the day, all decisions are up to you. What it does mean is that you will have the benefit of a financial expert casting an objective eye over your situation, listening to your thoughts and then making constructive suggestions some of which you might never have thought of yourself.
Actively look for ways to boost your retirement savings
This tip goes back to the first one about getting control of your finances, but while the first tip really relates to managing your money so that you avoid debt as much as possible and try to build up savings/investment if you possibly can, this tip is really to remind you just how important it is to do everything possible to make your money work as hard as it can for you. In particular, make the most of any tax breaks (such as ISAs) or work-related benefits.
Monitor and, if necessary, adjust your plan
Not only do you need to keep track of your plan to ensure that it actually is going to plan, you also need to keep asking yourself whether or not your plan is still an accurate reflection of your needs, wants and situation. Changing your plan does not necessarily mean that there was anything wrong with it at the time it was made. It can simply mean that there have been changes in your life since it was created.
Think about how best to make the most of your retirement savings
In the old days, you had to use most of your pension pot to buy an annuity and that was the end of the matter. All you had to decide was which annuity to buy. These days, you have a much wider range of options for your pension pot and if you have additional pensions savings held outside of a pension wrapper your choice of options may be even broader. Again, professional advice could come in very useful here.
Tax treatment varies according to individual circumstances and is subject to change.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.