How Can I Get the Best Return on My Pension?

Your pension is important for your retirement. If you have a good amount saved up it will allow you to get the right medical care and get it when you need it the most.

A large pension sum also allows you to retire early and fulfil your dreams like seeing the world or building something wonderful.

A research done by the Royal London insuring agency estimated that you would need a total pension of at least £260,000 if you want to retire comfortably. This amount of pension would provide a pension income of over £9,000 per year in addition to the state pension of over £8,500 that will allow you to live comfortably.

The Importance of Interest Payments on Your Pension

The money that you put into your pension fund is a kind of investment. The rate of interest on your pension is determined by your pension provider and earns interest over the years.

The rate of interest and total profits you make on the pension plays a big part in getting a high pension later. A higher rate of return will help you reach your pension target quicker.

The time at which you start the pension fund is also important. If you start a pension fund early on, let’s say during your 20s and 30s then you will end up with a much higher interest profit accumulated over the years. This is not to say that you can’t have a good pension even if you start later, but it will take a lot more effort to build up your pension after you have hit your 50’s.

Risk vs. Reward

To a large extent, the interest rate on your pension is determined by the risk factor. If your pension is invested into high-risk investment portfolios, you are likely to get a higher return. However, there is a risk that you might lose part of or your entire investment due to aggressively risky investment.

On the other hand, if your pension fund is invested in low-risk securities, such as government bonds and savings accounts, then the chance of losing your investment is much lower. The drawback is that your interest income will also be lower so you will need to start saving earlier.

Aggressive Investments

The greatest potential for interest profits is in high-risk ventures. These include investments in new technologies, start-up businesses, overseas properties and high interest offering foreign banks. The interest rates offered on such investments are sometimes as high as 12% – 20%.

However, there is always a high risk that these ventures will fail. The new business can fail, technology development may get abandoned and the overseas property you purchase might turn out to be a fraud.

Your pension fund provider will need to inform you about the risks and return on the pension. You should take an active role in managing your pension by contacting your fund manager and asking questions about where and how your savings are being invested.

You have two options for pension fund management.

  1. You can manage the pension yourself through a self-invested personal pension plan. This option gives you more control but it is only suitable for people who have a good financial understanding of the markets.
  2. You can opt for a personal pension plan where the pension company takes over the management of your pension. This option is safer as investment experts are skilled in their work and they can pick the right investments for you based on market research and knowledge.

If you need advice on managing your pension fund, then get in touch with our experts who can give you a detailed overview of investment options to maximize the return on your pension.

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