The Importance of Financial Planning

Pensions – No longer a luxury but an absolute necessity


The recent budget announced that the Pensions levy is being substantially reduced and indeed will be abolished completely by the end of 2015. What was seen as a major obstacle to the encouragement to save through a Pension Plan for your retirement has now effectively been removed. Here therefore are some key considerations for you to bear in mind.

1. Start as soon as you can

  • Make no mistake, the starting point is the most important point when it comes to pensions.
  • Of course it is hard for someone in their 20s to think about saving for their retirement – let’s face it they are immortal and will never get old! – and it is made even harder in a fraught economic climate.
  • But the sooner a pension is started, the less a person will have to save. Someone who is 25 and takes out a pension is saving themselves a world of financial pain in the years ahead. If they wait until they are 40 they will need to put aside over 4 times to get themselves the same return.

2. Never panic though

  • More than 50 per cent of the population does not have a private pension.
  • While it is better to start a pension early, that doesn’t mean it is ever too late to start, it simply means that the later the start the more you may need to put in.
  • Counterbalancing the late start is probably a greater degree of affordability as you get older.

3. Managing risk

  • When you are younger you can afford to take a degree of investment risk that can include investment in high risk stocks.
  • As you get older the fewer risks you should take.
  • A gradual de-risking should be a feature of your strategy with each passing decade.
  • Good advice will help steer you through the process and to identify suitable opportunities without putting all your eggs in one basket.

4. Mix things up

  • Don’t just decide on a sum you’re comfortable putting into it and leave it at that. Change the payment amount as your life circumstances change.
  • If you get a pay rise you can increase it, if you have children you can reduce it (but only slightly). If you are due a bonus you can put in a once off lump sum.

5. A necessity, not a luxury

  • Putting pension money aside for your future retirement should be considered an unavoidable outgoing and not a luxury.
  • It is right up there with a mortgage, food, clothes and electricity as one of the things people need to realise that they cannot do without.

6. Keep tabs and get good advice

  • You should check your pension plan regularly.
  • Having access to a good financial planning adviser who will steer you through the process and carry out regular reviews with you is vitally important.

Source: Lifetime Financial Planning 2014