Joining us in a four part series on pension planning for Company Directors, is guest blogger Jenni Macdonald-Sykes FPFS , Chartered Financial Planner from Chevening Financial.
Pension Myth Busting
In my last article, I wrote about the importance of retirement planning and how pensions can potentially save Company Director’s money.
Now it’s time to dispel some of the myths around pensions.
Myth 1: If I invest money into a pension, I might lose all of it.
Pensions have received a lot of bad press over the years – this is mainly due to mis-selling scandals in the 1980’s and the historic collapse of a number of occupational pension schemes.
But what is a pension really?
I encourage my clients to think of their pensions as a simple pot of money – that’s all it is really, a pot for money that you will use in the future when you are no longer earning. The pot won’t be available to you until your 55 but when it becomes available, it will give you 25% of its contents as a tax-free lump sum and the option to withdraw income as and when required.
This pot also has the potential to be passed down to future generations.
Pension assets should be invested for growth as if you hold that pot of money in cash for 20 years, it may lose value in real terms due to inflation. As such, the value of your assets will fluctuate over time with the markets and this is something which you need to be comfortable with.
That’s why we believe it is important to take advice and ensure you are invested in line with a level risk which is appropriate for you and your timeframe to retirement.
A financial adviser will guide you through the investment process, explain what is meant by risk and reward, and work with you as retirement approaches to ensure that you are on track.
Myth 2: There’s no point worrying about pensions when you’re young
Lucky you that retirement is such a long way off but why would you leave things until you did have to worry?
The earlier you start to invest into a pension the longer you will have to build up your pot and the larger pot you will have when the time comes.
It’s fine to start small. Did you know that investing £100 a month into a pension from age 25, could potentially provide you with a pot of £153,000 at age 65.
The longer you delay contributing to a pension the more you will need to contribute in the later years and the harder it will be to achieve the lifestyle you desire.
Myth 3: Pensions are boring
As a financial planner, I could never agree with this statement…. but I get it, the word pension does not scream excitement, or does it?
I encourage my clients to think less about their “pension” which fundamentally is just a pot of money for the future, and to think more about their lives – and what that pot of money will be spent on.
How would you like to spend your retirement? Travelling around the world, half the week on the golf course, spoiling your grandchildren – what’s boring about that?
Generally, we are living longer and it’s even feasible that some people will spend longer in retirement than they have working. The majority of people are still mentally and physically young when they retire and will remain so for many years. Why wouldn’t you want to use that time to fulfil some lifelong dreams? I can’t think of anything less boring than that.
Myth 4: Pensions are complex
Ok, so this one is less of a myth. It is true, pensions can be a complex subject matter.
There are many different options - where to invest? How much to invest? How much is enough? Then when you get to retirement - how do I make the most of the pot? How do I make it last? How do I save tax? How do I provide for my family?
This is where engaging the services of a financial adviser, we believe is vital.
A trusted financial adviser aims to guide you through the complexities and help you to make the right decisions. In my next article, I’ll talk more about the importance of creating a retirement plan and reviewing it regularly to ensure that your retirement is the retirement you want, and not just the retirement you can afford.
Meet Jenni
I am Jenni Macdonald-Sykes a Chartered Financial Planner for Chevening Financial Ltd working in East Sussex and Kent. I specialise in pensions and retirement planning, aiming to help clients to achieve a sustainable and enjoyable future, and making the complex, simple.
For a refreshing approach to financial planning, please call 07917 855714.
Investment values and income from them can go down as well as up, investors may get back less than their original investment. Chevening Financial Ltd is authorised and regulated by the Financial Conduct Authority, our financial services registration number: 478268.