The secret to taking control of your pension

By Phillip Bray

One of the most common complaints about pensions is the lack of control investors have; this can cause two main issues.

Firstly, in our experience, most people who actually do pay into a pension simply make their monthly contributions and pay little or no attention as to where the money is invested, then wonder why it’s not performed well and they have a lower income in retirement than they expected.

The second group doesn’t even get as far as making contributions, they simply read often misleading articles in the press, about the ‘lack of control’ pension investors have and don’t bother. This certainly means they miss out on tax relief and may mean they are not receiving valuable employer contributions, both of which could help them achieve their retirement goals.

First things first, advice or DIY?

So, how do you take control over your pension? Well, there are a few ways, firstly though you need to decide what type of investor or saver you are.

The first group of people, perhaps because they don’t have the time, don’t know enough or simply want some help, take advice. The second group are DIY investors, in other words they want to make their own investment decisions and not pay for an adviser to help them.

Take some time to think about which group you are in, do you feel comfortable making your own investment decisions? Do you have the time and the knowledge to manage your own pension investments?

If the answer to these questions are a resounding “no!” then you probably need some advice, preferably from an independent financial adviser. Now that doesn’t mean you can’t have some control. Choose an adviser who offers an ongoing service and who will allow you to be part of the decision making process; the best adviser / client relationships are a collaboration rather than a dictatorship.

Taking advice has many merits and if the adviser does his or her job properly it should mean you don’t end up with any nasty surprises in retirement. However, it is the DIY investor who can really take control over their pension.

Goal setting

The first thing any DIY investor needs to do is take some time to think about his or her goals.  When will retirement start? How much income is needed? Will any capital be needed? What state pension will be received? These are all really valuable questions and a great starting point.

Next start thinking about how much risk you are prepared to take. As a rule of thumb the more risk you can tolerate the more you will invest in stocks and shares as well as other riskier assets, the less risk you want, the more you will look at cash and safer investments.

You then need to make two key decisions, where to invest and who to hold your pension with; these are two very different questions.

The pension provider dictates the charges you will pay, the service you receive and importantly, the types of investment you can buy. For example, if you just want to buy funds the a Personal Pension or a Stakeholder Pension may be sufficient for your needs, but if you want to buy other assets such as shares, EFTs, deposit accounts or even property, you will probably need to use a SIPP (Self Invested Personal Pension).

Although not for everyone, most DIY investors really start to feel in control of their pension when they open their first SIPP. You are in control, you can buy a far wider range of assets (within the rules of course, some assets are strictly forbidden in SIPPs), no one is making the decisions on your behalf, you really are in the driving seat.

Of course there are downsides, even the best investors make mistakes and losing money from time to time is inevitable, but crucially you are in control, which might be the difference between actually planning for retirement and not.

Phillip Bray writes for Investment Sense and looks at how using a SIPP can help you regain control of your retirement planning.