Today is Pension Awareness Day. But how aware are you when it comes to saving for the future?
Most people nowadays, and pilots are no exception, make pension provision through a money purchase or defined contribution scheme, be it a personal pension, SIPP or company sponsored plan.
Much mystique surrounds pensions, but in their simplest form these arrangements are no more than glorified savings plans.
You and maybe your employer pay into the scheme, those monies are invested and hopefully grow and you build up a pot on which to live in retirement.
The glorified bit comes in the form of the tax reliefs available on your contributions, the tax efficient treatment of the underlying investments and the availability of a tax free cash sum on retirement.
Obviously you want your pot to be as large as possible when you come to stop work. The more money you have, the more you will be able to enjoy retirement.
There are basically three factors which will influence the size of your pension fund:
1. How much you save
2. The charges payable under from your plan
3. The returns achieved by your investments
Although you can decide where to invest your money, you have no control over the actual returns you will achieve. You have no way of influencing investment markets.
Charges act as a drag on your fund, so the lower they are the better. However, you can't dictate the level of charges, the pension provider does. That said, you can at least shop around for the best deal, remembering like most things in life the cheapest isn't always the best.
The one area you do have most control over, however, is deciding how much to save. And like most savings plans, the more you save the more you will benefit.
Unfortunately, this is the area where most people pay the least attention.
Saving for a decent pension is not an easy task. As a general rule of thumb, I would suggest you should be aiming to accumulate a fund of at least 33 times the income you want to live on in retirement. You will need to target a fund of £330,000, therefore, for a pension of £10,000 per annum.
The earlier you start the better. Through the wonders of compound interest, the monies you save in the early years of your career will prove more beneficial than the ones you save later as they have longer to grow.
And save before you spend. The chances are you are not saving enough. A common financial planning mistake is to save what you have left after your monthly spend. If you want to take your finances seriously, you should spend what you have left after saving.
I hope this gives you an incentive to review your own arrangements on Pension Awareness Day. If you have any queries or would like any assistance, then simply contact us on 020 8476 4100.
Posted on 15 September 2017