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5 mistakes you’re probably making with your pension

Buried in paperwork and sticking your head in the sand? Yup, us too... We asked the pros at Oxon's Wise Investment about where we're going wrong with that glam retirement plan and how to help make the pot bigger

1YOU’VE GOT MULTIPLE PENSIONS WITH PILES OF PAPERWORK

Maybe you’ve had a number of different employers over the years and have amassed various pensions – hey, who hasn’t got some variety on their CV?! You’re probably getting piles of paperwork through the post and your inbox, but don’t have a clue what it all means. And it doesn’t help that pension providers use different terminology – talk about apples and pears – but it is worth sitting in a quiet corner (or praise be – call in a pro!) and reviewing what you’ve got. There may be opportunities for amalgamating, reducing costs, and going for better/more appropriate fund choices. Ultimately, this is about taking control of your retirement… plan for that yacht in Monaco, baby.

2/ YOU’RE STUCK IN THE DEFAULT FUND

Most pension providers stick you into a default fund unless you specifically ask them not to. Do you know what your pension is invested in, and what the performance of the funds has been? Because you can find this out – a successful pension is all about investment diversity.

3/ YOU’VE STOPPED WORKING, SO YOU’VE STOPPED PAYING IN

Are you staying at home to care for kids or extended family? This doesn’t have to have financial implications for your retirement (which you’ll probably be dreaming about on a daily basis.) Even if you’re not in paid employment, you can still pay up to £2,880 into a personal pension per year and get tax relief, topping it up to £3,600. You can have personal pensions alongside workplace pensions.

4/ YOU HAVEN’T STARTED ONE FOR THE KIDS

Sounds bonkers, but you can start a pension for kids and grandchildren. If you make the contributions out of your excess income, the value of the contributions is removed from your estate on death, which will save on the dreaded inheritance tax. Tabitha might not appreciate a pensions statement in her birthday gift bag, especially as she can’t splurge it when she gets to 18 like other trusts (the earliest you can currently access a pension is at age 55, which is rising to 57 from 2028), but she’ll be in a better place when it comes to her retirement.

5/ YOU’RE PUTTING IT OFF

Time is of the essence, so stop putting it off – that yacht won’t buy itself! The maths speaks for itself. Look, I’ll show you. Which of these two investments do you think works best in the long run?

A/ £80 per month saved for 40 years, growing at 9% a year (total invested £38,400)

OR

B/ £500 per month saved for 20 years, growing at 9% per year (total invested £120,000)

The answer is A! This produces a pot worth over £370,000. Option B produces just over £330,000 which is £40,000 less**. And its all thanks to the magic of compounding, which Albert Einstein is said to have called “the most powerful force in the Universe”. And who’d argue with Einstein?

Don’t have a pension at all? *Slaps forehead*. Go back to the start and read again until it’s top of your 2022 to do list


**The examples shown are for illustrative purposes only and don’t take into account the impact of charges. The value of investments can go down as well as up and returns are not guaranteed.

Ready to call in the experts?

Oxfordshire-based Wise Investment is just the kind of place we want to go for financial advice – it’s a local, largely female-led, employee-owned, long-running and no-nonsense firm where the first conversation is no obligation and no jargon.

Wise Investment is authorised and regulated by the Financial Conduct Authority (FCA 230553).

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