Top 5 Pension mistakes made at this time of year
Some investors tend to rush into pension investments at this time of year because of the tax deadline and very often these contracts don’t get revisited until they mature.
1. A pension is for life, not just October
A pension is more than a simple tax break – it’s an investment that you will literally have for the rest of your life and it deserves more love and attention. Many investors feel detached from their pension investments as they believe that they cannot control them the same way they can control other investments. This is simply wrong – your pension can be invested in a plethora of assets – from deposits to property. If your provider doesn’t allow the investment you want, move provider.
2. Take advice
As a nation we don’t value financial advice adequately – but evidence shows that people who take advice retire on funds that are 60% greater than those that don’t. A simple example, postponing your pension contribution until after the 30th June has already saved you 0.75% because the levy won’t apply to that contribution – did many of you make other contributions before that date?
3. Don’t focus on the charges
Investors tend to place a disproportionate emphasis on the cost of one contract over another and will typically opt for the one with the lowest charges. An advisor is more likely to base the decision on (1) the quality of the provider and their ability to administer your contract effectively, (2) the investment choice and performance, and (3) the costs – in that order. Imagine twins – one saves 0.5% entering a contract, the other realises 0.5% per annum superior investment growth. At retirement 20 years later, twin B will have a fund almost 10% higher than twin A. The initial saving has cost him a lot!
4. Don’t believe everything your provider sends you
Your provider isn’t telepathic! And therefore the information that they send you contains assumptions that may not be accurate. Take for example someone in an occupational pension who is retiring and has a lump sum entitlement of 1.5 times salary – if the salary on record is €40,000 but your actual earnings are €50,000, the provider will unwittingly cost you €15,000. Make sure you update your final salary details with your provider before you retire.
5. Did I mention the bit about taking advice
Typically, independent advice will not cost you anything near the level of value you get in return. Your adviser will increase the level of tax you can mitigate, negotiate competitive pricing structures, align your investment to you appetite for risk, augment the benefits you receive, protect you pension in divorce situations and secure it from creditors where possible in insolvency situations. We’re the black belts in finance – make sure we’re on your side!