Is it ever to early to get a pension?
At the age of 21 I think to myself that it should be too early to be worrying about a pension, but the question is: will the state pension still exist by the time I come around to claim it?
With the retirement age rising, according to the Direct.gov website’s pension calculator, I can retire when I am 68 in 2057, as long as I make 30 years of National Insurance contributions. With the current state of the financial industry and the amount of Corporations with huge pension deficits, maybe I shouldn’t place much faith in the government or my employer looking after when I grow old.
As a student looking forward to graduating this year, I have been searching for my dream job and the excitement of building a successful career in the city. But should I start early and pay into a private pension now?
Well after a little research I’ve found plenty of products on the market but all of them with different pro’s and con’s and financial jargon.
A stakeholder pension is more or less the same as a personal pension, but this type of pension has to conform to the minimum standards that have been set out by the government authorities, although this does mean that they have lower charges and clearer terms.
Personal pensions are usually a product that you purchase from a provider such as: An insurance company, High Street bank, or more commonly a pension company.
Unfortunately, these do not currently advertise on comparison sites as the products are too complex and usually more tailored than other financial products.
If you are serious about securing your future and taking a pension then you should speak to an IFA independent financial advisor (IFA). These are professionals and experts in this field and will have read research on the products on the market from the variety of different providers.
Personal pensions are “money purchase arrangements”, which means that you regularly contribute to the policy and this money is then used to be placed in the appropriate investments for you such as bonds, stocks or shares.
Personal pensions can be invested into other categories of asset classes. This means that they could be place into UK or overseas equities, put into fixed interest arrangements and cash or commercial property deals.
When you invest in your personal pension, there are no guarantees of returns and the value of your investments can fall as well as rise.
Returns are based on the level of risk and fluctuation you are willing to take in pursuit of your gain.
The problems that come with personal pensions are there is no guarantee of a return on the investment made as the value of the investments you make could fall as well as rise.
The returns are based on the level of risk you are willing to take.
For this reason, it is wise to alter your asset allocation over time by lowering your risk levels as you draw closer to retirement. This could be done by turning to either cash or fixed interests, such as gilts.
If you are investing in a collective investment scheme, every time you contribute to your pension pot, your money is pooled into an overall pension fund of which you own certain units or shares.
Think of it as a large cake with hundreds of layers of different assets and each time you invest, you are buying a small slice of it.
Therefore, for someone of my age, I could possibly take some risk with any potential investments that I may make, but for someone in their fifties it would be wise to be more careful and opt for cash or fixed interest opportunities. More so if you were hoping for an early retirement.
For those who want a bit more control of their investments, the best option could be a self-invested personal pension (SIPP). SIPP’s provide access to most funds and assets as well as individual shares, property and other investment opportunities.
There are two major differences that you need take into consideration before choosing the option of self investment.
If you wanted to take advantage of a wider range and more flexible choice of investment, you will have to pay higher charges for a SIPP than someone whom was with an insurance managed fund of a stakeholder plan.
Most company run schemes allow the flexibility to stop contributions which could come in handy for those on maternity or sick leave, or those who find themselves unemployed for a long period of time.
It is important to get the right advice, so for tailored personal pension I would suggest visiting a financial advisor, who will be able to talk you through all the possible options.