What are my pension investment options?
When you take out a pension, you may get to decide how you want your money to be invested (depending on the type of arrangement that you take). If this is the case, you will be asked to make choices by your pension provider, and will need to think carefully about how you balance the risks you feel comfortable taking, with the returns you would like to see on your money.
What sort of investment options should I choose?
We can't tell you how to invest your money – you need a professional financial adviser to do that. But we can tell you that when you invest in a pension, it's likely you'll be offered a choice of things in which to invest in – from simply saving the money as cash to investing in stocks and shares.
Some people choose to invest their money in what's known as managed funds. These investments are managed by a professional fund manager on behalf of the investor. They invest in a number of different assets according the predetermined investment mandate. Managed funds can be country specific (such as a UK growth fund); they can be asset specific (such as UK bond fund); they can be risk specific (such as cautious managed) or they can follow an investment objective (such as UK income fund).
What are my options if I have a personal pension?
If you choose a personal pension, stakeholder pension or self-invested pension plan (SIPP), you'll have a say in how your money is invested. You'll be given a range of options and investment strategies to choose from.
Don't worry – although your pension provider might not be able to give you professional financial advice, their customer service teams or consultants will try to make the process as simple as possible. There is also usually a default option, so you don't have to choose if you don't want to. Instead, the fund can be invested in a broad range of funds, that appeal to as wide a range of people as possible.
What if I have a workplace pension scheme?
If you have a workplace or occupational pension, your position is different. If your pension is a final salary or defined benefit pension you will not need to make any investment decisions. If you have a defined contribution or money purchase pension your employer may offer you a default investment fund or you may be able to choose an investment fund. This will depend on your employer’s pension scheme.
Having said that, you may still have to make some decisions that affect your income in the future. If you decide to make additional contributions, for example, that could boost your pension pot.
What if I have a SIPP?
A SIPP (self-invested personal pension) is usually chosen by people who want more control over how their money is managed. Most SIPPs give you access to a wide range of assets from which to choose, and you'll need to be more confident about making investment decisions that can have a significant effect on the value of your pension savings. As with any financial products, we would recommend speaking to a professional financial adviser before you invest in a SIPP. That way you can ensure you are aware of all the features and benefits that a SIPP can offer you.
What else should I think about?
- Don’t be afraid of shares
If you are investing for the long-term, it’s not a bad thing to take some risks if you feel comfortable in doing so. If you only choose conservative investments, such as cash or bonds, your investments may not grow as well as you’d like or need. Shares can offer you the ability to grow your money over time, but remember shares are subject to market fluctuations and past performance is never a guide to the future!
- Think about diversifying
It’s not a bad idea to spread your money across different assets, sectors or indeed geographic regions if you can. Many basic managed funds do this for you already, but if you want to take a more active part in your investments, it’s worth considering how you have spread your risk across the investments you have made.
- Check for fees and charges first
Some pension providers and investment companies charge more for some investments than others. They may charge you an initial fee, or an annual management fee, and this can eat into any growth you make on your investments. It might also be worth exploring using an intermediary for your pension rather than going direct to a provider as this can be cheaper.