When you stop work or retire, your income stops also; it is self-evident that you need to replace your salary with an alternative source of income. For most people this will be by way of state pension and any other private or company pension that they have accrued benefits in.
None of us can foresee the future so let us consider what would happen if you retired today, particularly as the maximum State Pension is £8,562 per year.
The average salary in the UK is just under £30,000; as this is £21,500 more than the state pension, you need to consider how you are going to make up for the loss of income.
If you have a company pension that is related to your salary, then you will receive an amount that is related to the number of years you have worked for your employer and your final salary.
If you have a private pension, then your future “income” will be dependent largely on the investment funds that the pension holds and the charges that are deducted along the way.
Most of the pensions that I review are “invested” in underperforming investment funds, so the returns from these investments are low and may not even cover the charges deducted from their pension.
A lot of clients aren’t even aware of the investment funds within their pensions, or what they can do to systematically improve the performance of their pension and hence improve their future “income”.
Eighty per cent of collective investments underperform, so you need a process to discover the super funds, funds that consistently outperform the average.
You can also leverage performance by the inclusion of investment trusts at large discounts to net asset value, that will require you seeking advice from an adviser with an outstanding knowledge of investment.
Once you have created a more dynamic pension than before, you need to consider increasing your pension funds by making additional contributions, you can do so up to the limit of the annual allowance. You may be able to pay more, if you utilise “carry forward” provision.
So, there are two ways to lift the value of your pension fund, firstly by improving the performance, secondly by increasing the amount of contributions.
Will either of these methods double the value of your pension fund?
Depending on your time scale and the diligence of engagement, you might.
More Money Matters – next week
Past performance is not necessarily an indication of future returns, and future performance is not guaranteed.