Your first pension – the options
Once you’ve decided to start saving into a pension, you’ll need to choose where to save. There are many different providers to choose from, but your first task will usually be to select the type of pension that’s right for you. In the article below we explain which of these it makes sense to consider first.
Joining a workplace pension scheme
If you have access to a workplace pension scheme, then it’s likely to provide you with the most convenient route into pensions saving.
Schemes with employer contributions
By 2018 all employers must automatically enrol eligible employees into a workplace pension.
Any money you put into the scheme will be topped up twice – first by your employer and second by the government, in the form of tax relief.
Setting up a personal pension
If you don’t have access to a workplace pension, for example if you’re self-employed, then you’ll need to set up your own personal pension.
Unlike with a workplace pension, where the decision you face is whether or not to stay in a single scheme chosen by your employer,when you’re setting up your own personal pension the decision is much broader because there’s a wide range of options on the market to choose from.
Important things to consider when comparing personal pensions include:
- The charges for setting up and running your pension.
- Any rules that apply to the timing or size of your contributions.
- What the investment options for your fund are (see the section, below).
- How easily you can transfer your savings to another scheme if you want to.
There are three types of personal pension:
Basic personal pensions - where you make regular monthly payments into a plan usually with a wide range of investment strategies chosen to suit different needs and attitudes to risk. Charges vary.
Stakeholder pensions - which are a form of personal pension with low and flexible minimum contributions, capped charges and a default investment strategy if you don’t want too much choice.
SIPPs (self-invested personal pensions) - which tend to be suitable for larger contributions. They give you a large degree of control over the way your pension savings are invested, but this brings extra risks with it if you’re not an experienced investor and their charges might be higher.
How to invest your pension savings
Part of the process of choosing your first pension will be to decide how it is invested.
Your chosen pension provider will offer you a range of funds to choose from.
Each of these will have a different investment profile – that is, they’ll invest your pension savings in a different range and mix of assets (cash, bonds, shares, and property) and therefore offer different levels of risk and potential growth.
Many providers offer the option of a default fund which you will be invested into if you don’t make a choice. This might not fit with your attitude towards risk, so do look at the options available. If you are unsure which fund to choose, consider speaking to a regulated financial adviser who can help you make a choice.
Do you need a financial adviser?
It’s quite possible to start saving into a pension without getting financial advice, particularly if it’s into a workplace scheme. However, if you are unsure what funds to invest into it might be worth considering professional advice.
Bear in mind, however, that some employers provide financial advice as a tax-free benefit.
If you are not eligible to join a workplace scheme, unless you’re confident about choosing a plan that is right for you it’s best to get advice.
A financial adviser will look at your particular needs and only recommend investments that are suitable for you. You do have to pay for the advice but if the advice turns out to be inappropriate, you can complain and have access to the Financial Ombudsman Service.
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