Howard Goodship, chartered financial planner and member of the Ringwood financial planning team has written his fifth article in a series on Understanding Investments. To read other articles in the Understanding Investments series please see the articles below or visit our New to Investing web page.
Understanding Investment Articles
‘I have tried to provide a foundation of information to help simplify investments. The next three articles will focus on pension and retirement options; the first being pre-retirement.
What are my Pre-Retirement Pension Options?
When working with clients, it is easy (but ineffective) to simply identify surplus income and recommend this is saved without reviewing objectives and goals. In my experience, there isn’t usually much “surplus income” and little incentive to save it. My preference is to understand what retirement looks like for each client as this is incredibly individual (and motivating) and then help them quantify the cost of those aspirations. We then work backwards and identify what financial actions are required now and ahead of retirement in order to achieve their retirement goals. A retirement strategy is critical and cashflow modelling helps illustrate, in monetary terms, what action is needed.’
Once a strategy is agreed, it is important to review current pensions and investments to decide whether they are fit for purpose.
Is the level of risk acceptable?
Is the investment performance appropriate for the given the level of risk?
Are tax allowances being utilised?
Are the fees reasonable?
The choice of available low-cost pension schemes has improved significantly since the introduction of auto-enrolment and many older pension schemes are now out of step with current plans and may apply unnecessarily high management charges.
Howard Goodship, independent financial adviser, and member of the Ringwood financial planning team in Hampshire continued:
‘It is important clients have a clear understanding of future secured pension income; for example, any current or deferred Defined Benefit pension schemes from their current or past employers.
What about the State Pension?
It is simple to request a projection online which will detail when and how much is due to be paid to you. The projection will also identify any National Insurance Contribution shortfalls which could be topped up to provide additional State Pension income for a modest cost.
“Freedom and Choice in Pension Legislation”, introduced in 2015, now offers retirees many more choices and flexibility at retirement, but greater choice comes with greater responsibility. Planning ahead and ensuring you have the right strategy helps you make the most informed and effective decisions to meet your retirement aspirations.’
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. The contents of this article are for information purposes only and do not constitute individual advice.