Sunday 21 January 2018

Stop putting your pension plans on the long finger

Plan your pension now!
Plan your pension now!

Jim Hegarty

You may have one hundred reasons for not doing anything about your pension.

However, the younger you are when you start paying into your pension, the better your chances become of your pension growing.

There is no point in putting away more than you can afford however, and being financially miserable now. Only put away what you can afford, but remember that all contributions are tax deductible.

Check out your attitude to risk before taking out a pension plan. With all investments, it is important to know your acceptable level of risk - which more than likely will change over the years. Many providers allow a default strategy whereby as you get older the funds are gradually switched to a low risk fund, thereby consolidating your fund at normal retirement date. This is a strategy well worth considering.

Consider buying protection against not being able to make your pension payments in the event of illness or accident. Most pension providers allow you to buy contribution cover, which will ensure your pension payments will be paid should you become too ill to work.

Your biggest asset is your earning power, so you should consider protecting it by means of an income-protection plan which is tax-efficient.

Take out a pension plan which increases your pension payments on a regular basis. As people go through their working lives, they earn more, so it makes sense to increase your pension payments at a similar rate. This option can be done at the outset or more effectively with regular reviews with your broker.

Don't underestimate what you have to put away to have a decent retirement income. Although the size of your retirement income will depend upon a lot of different factors, such as your age and interest rates at the time of your retirement, you need to be realistic about the income you need when you do retire. Don't allow yourself to be dependent on the state pension.

Bear in mind, most people consider 65 a normal retirement age, but for many, 68 will be the normal state pension date - bridge that gap.

Go for a flexible pension that will allow you to change with your own circumstances. Many pension providers now offer plans which allow you to change your pension payments according to the changes in your own finances over the years. Many people defer making pension payments in the belief that they can increase payments when they can, but it's better not to rely on playing catch-up.

Go for pension providers who have a good track record in pensions and are financially strong. Some providers, especially insurance companies, have been offering pensions for a considerable amount of time.

Insurance companies are usually backed by huge financial resources and pensions are an important part of their business. However, it is important to remember that past performance should not be your only criteria.

Also, having a number of fund managers working on your behalf is recommended. There are many pension providers who will allow you access to a range of fund managers.

Jim Hegarty is managing director of the financial advisers, Hegarty Financial Management

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