We have to realise that a pension is not a luxury now but an absolute necessity
1 Early start
Make no mistake, the starting point is the most important point when it comes to pensions. And the earlier you get things started the better it will be. Of course it is hard for someone in their 20s to think about saving for their retirement – let’s face it they are immortal and will never get old – and it is made even harder in a fraught economic climate. But the sooner a pension is started, the less a person will have to save. And it doesn’t take a generation for the real savings to become apparent. Someone who is 25 and takes out a pension costing just €25 a week is saving themselves a world of financial pain in the years ahead. If they wait until they are 40 they will need to put aside over €100 a week to get themselves the same return.
2 Risky business
If a person is in their 20s or 30s, chances are they will have at least 40 working years ahead of them – more if the retirement age is extended as life expectancy grows. If they have that long ahead of them, they can afford to gamble with their pension pot. That is not to say they put their entire pension pot on a nag in the 2.45 at Doncaster but they should look towards funds that invest in more high-risk stocks. The real key is not putting all the eggs into the same baskets. And it is always worth finding funds which have a dynamic aspect where they de-risk as time passes.
3 Scale it back
The older a person gets, the less risks they should take with their pension fund. With each passing decade, there should be more and more de-risking so that by the time a pension is close to maturity, the investments should be as safe as houses – although given the volatility of that sector in recent years maybe a better analogy is needed.
4 AVCs – always your friend
If a would-be pension holder is just starting out and has no serious drains on their finances other than holidays, nightclubs and fancy shoes, they should put a few bob into Additional Voluntary Contributions. They will grow a pension pot fast and give a person greater control and independence from pension shocks. As financial commitments grow, the AVCs can always be scaled back if necessary.
5 Never panic
More than 50 per cent of the population does not have a private pension. While it is better to start a pension early, that does not mean it is ever too late to start. A small pension pot is much better than no pension pot at all.
6 Mix it up
Don’t just decide on a sum you’re comfortable putting into it and leave it at that. Change the payment amount as your life circumstances change. If you get a pay rise you can increase it, it you have children you can reduce it (but only slightly).
7 Watch the fees
Charges really matter and can vary from 0.9 per cent to 3.08 per cent depend on the type of pensions taken out. The difference between 1 and 3 per cent may not sound enormous but spread out over the lifetime of a fun, it a person could end up paying 3 per cent of their total fund in charges or 28 per cent.
8 Stay away
Pension rules will most likely change in the years ahead, to give people greater access to their funds if their financial circumstances change. If this does become a reality it will be extremely bad news for many people, as the consequences of dipping into the fund to cover everyday expenses will prove costly in the long run.
9 A necessity, not a luxury
Putting pension money aside should be considered an unavoidable outgoing and not a luxury. It is right up there with a mortgage, food, clothes and electricity as one of the things people need to realise that they can not do without.
10 Keep tabs
People should check their pension plan regularly. That way they can see if it is working for them and make any adjustments.