10 Tips for a Better Pension

Millions of people are affected by a gap between their retirement hopes and reality. Younger savers do not tend to prioritise saving for retirement. Those who do, often save with little structure or discipline, resulting in inadequate funds to provide an income in later life. Insufficient retirement savings will result in a delayed retirement or a reduced income lifestyle. So making the most of your pensions is important, whether you are due to retire in 1 year or 40 years.

Here are my 10 top tips to ensure your pension is working hard and that you are on track to achieve your retirement goals.

1. Save More, Save Early

It is difficult to know exactly how much you need in your pension, but the earlier you save, the more you have and, the better your pension should be. By investing early, the benefits of compound interest will be greater. Compound interest benefits those who save earlier, as interest is earned on interest itself.  Ultimately this will help the fund grow over the long term.

The extra years of investment can make a huge difference to your overall retirement provision. As an example, an investor who saves $50,000 per annum with 5% per annum growth,
would have $660,339 after ten years, whereas an investor who started saving two years earlier would have saved $835,649.

2. Have Goals

Short, medium and long-term retirement goals should be set, and progress should be monitored regularly. Saving for retirement should be prioritised in your financial objectives, with other commitments such as life insurance premiums, becoming less important over time. This allows for greater savings to be achieved towards retirement. Along with the financial aspects of retirement, lifestyle is important and having goals relating to holidays or other luxuries may increase your motivation towards regular and disciplined savings.

3. Inflation and Investment Return

Inflation is a measure of how fast the cost of living is increasing. If your retirement fund is not keeping pace with inflation, you will eventually discover that you cannot purchase what you want in the future compared to today. Investors should aim to grow their savings at a rate that will exceed inflation. Interest from bank accounts rarely outpaces inflation, so cash savings tend to lose money over time. Investors should consider a turn to the stock market to generate better returns.

If you want to grow the value of your money over a long period, investments into stock markets are usually a better option. Historically, shares and bonds have outperformed cash, and particularly so over longer periods. However, stock market investments tend to carry more risk, so investors (with the help of their Financial Adviser) should find a suitable balance between risk and reward.

4. Manage Risk

By being in control of your pension fund ensures that you are only exposed to the amount of risk that you are comfortable with. Your investments should be diversified, and adhere to any ethical preferences.  Having control allows you to choose to take more risk in the earlier years whilst accumulating wealth, and then de-risk as you approach retirement.

5. Check Your Social Security

As an expatriate, you may have gaps in your national insurance or social security record. Some countries allow voluntary contributions to social security systems to cover any breaks, and a calculation can be done to assess the value of additional benefits which can be purchased. It is not advisable to rely solely on the welfare system in your home country, as
restrictions may be imposed in the future to reduce your entitled benefits.

6. Consolidate Your Existing Pensions

It is increasingly common to work for multiple companies during your lifetime. As a result, if you have more than one pension, it might be worth combining them into one scheme. This depends on the structure of the pensions and if there are any benefits which would be forfeited when moving to a new scheme. A new pension scheme should take advantage of the new pension freedoms and facilitate full flexibility in income drawdown. Consolidation can cut your ongoing administration, reduce costs and make it easier to track performance. Forgetting about former employer’s pension plans can result in expensive contracts and underperforming funds draining your retirement provision. It is recommended you seek professional advice in this area.

7. Knowing Your Tax Obligations When Retiring Abroad

In recent years, the number of expatriates globally has reached an all-time high as many job-seekers and retirees look beyond their home country for better employment opportunities and lifestyles. Knowing your tax obligations in each country in advance of relocating will provide clarity over the net income which you will receive. Furthermore, there could be alternative financial solutions which are taxed more favourably in your country of residence, therefore taking the time to assess your investments and ensure the structure is right is important.

8. Review Your Pension

It is vital that you monitor the performance of your pension, as you should do with any investment vehicle. By regularly reviewing the pension fund, this allows you to monitor progress towards your retirement goals. If your goals are not being met; appropriate action can be taken proactively, before it is too late. If your pensions do not generate the income you need, unfortunately, you only have two options;

a) Work longer
b) Accept a lower income for the rest of your life

Changes to your circumstances may need to be factored into your financial plan and retirement goals. Regular reviews will make sure that your pension is still on track to achieving your financial target.

9. Don’t Limit Yourself To Pensions

Whilst pensions provide tax benefits internationally, there tends to be restrictions on the benefits. This includes the minimum age of retirement and a cap on the level of contributions. Therefore, it may be appropriate to look at alternative solutions for retirement savings such as a portfolio bond or saving accounts. Depending on your country of residence, different investment solutions will be taxed differently whilst accruing benefits and once they are in payment.

As an example, an international portfolio bond can be assigned to a pension after commencement. This is of importance when retiring in a country that taxes a pension more
favourably than a portfolio bond. Non-pension investment vehicles can offer different structures
in terms of flexibility, access and taxation.

10. Seek Advice

Your Financial Adviser should clearly understand your financial position and after discussing what your future goals are, they should be able to construct a straight-forward and
effective plan to reach those targets. Once the plan has been implemented, ongoing advice should be taken for investments and taxation.

As tax legislation changes and new investment opportunities arise over time, having ongoing communication with your financial adviser is important to keep your pension benefits on track and working hard for you.