Retirement matters

Your questions answered

Q: I’m 39 and don’t have a pension. Should I wait until after the economy recovers before I commence my pension provision?
A: As a general rule and if appropriate to your particular situation, you should start saving as soon as possible. The longer you delay your pension planning, the more you will eventually have to pay. If your employer offers a pension, take it; if they do not, start your own personal pension. The pension system was overhauled in 2006 and, as a result, the industry has become more transparent. Pensions are also a very tax-efficient way of investing for your future, and depending on the type of pension provision you choose, now could be a good time to invest in pensions, when you can buy more shares or units for less.

Q: I am relying on my property for my pension instead. Isn’t that a good idea, long term?
A: Relying only on your property is tantamount to putting all your eggs in one basket. Although property has proved to be a very good investment for so many over the past decade, the market is in a different cycle now. It would be prudent to diversify your investments beyond just the property market.

Q: So what different kinds of pension are there? What should I go for and how do I go about it?
A: If you are offered a pension by your employer, it is usually the best option as they may provide a contribution, so they are effectively giving you money. If you are self-employed or not eligible for a company pension, you have several options. You could opt for a Self-Invested Personal Pension, which allows a more flexible approach. An alternative is a stakeholder pension, introduced in 2001 as an easy-to-understand pension with lower charges. Or, there is the personal pension, which may offer more investment choice than a stakeholder plan.

Q: Should I take a couple of years off paying into my pension while times are uncertain?
A: If you are contemplating taking this action, don’t do it if you can possibly help it. Any kind of break could have a big impact on your cumulative total and will affect the amount of money you have available during your retirement years.

Q: I am coming close to retirement age. Should I be worried about my pension fund having dropped?
A: If you are not retiring for another ten years, you still have time to ride out the current market volatility and hopefully enjoy the higher long-term returns that equities generally provide. If you have five years or less before you retire it is important to obtain professional advice, as much will depend on what your pension has been invested in. If you have just a year to go, it may be wise to consider decreasing your exposure to risk. First, get an up-to-date fund value from your pension provider. If your pension fund has been hit by the recent market fall, your aim should be to discuss ways of minimising turning your paper losses into real ones.

Q: I am approaching my retirement. Can you tell me what an annuity is?
A: Pension savings may be used at retirement to buy an annuity, which pays you a guaranteed income for the rest of your life, but you don’t have to buy it from the provider you have been using for your pension
plan. An ‘Open Market Option’ enables you to shop around to find the best deal. The more you put in, the higher the annual payout you will receive.

Q: I didn’t decrease my exposure to stock market-based investments prior to the commencement of the current economic turbulence and have seen the value of my pension drop. Is it possible to delay taking my pension?
A: You could delay your retirement and buy your savings some time in a bid to help them recover. Or consider keeping the majority of your pension pot fully invested by going for an unsecured pension, if you are risk averse, and taking only your tax-free cash sum now. The disadvantages are that whilst invested, your funds could fall as well as rise. If the value of your fund goes down, you would have less to purchase an annuity in later years. There would also be an ongoing need to regularly review your pension fund whist in deferment. By deferring the purchase of an annuity, any annuity cross-subsidy would be missed. However, you could take up to 25 per cent of your total fund value when you retire to provide you with an income for a few years. Also, consider looking at any liquid assets you could use, such as Individual Savings Accounts, to generate short-term income. Hopefully the stock markets will improve, although the risk is that annuity rates could drop. But phasing may help you to balance out this problem.