What you didn't realise about your pension

You're probably losing money in your company pension scheme

Employee pensions are extremely common if not mandatory nowadays. Many people are indirectly investing in pension funds via these schemes and yet they do not realise what they are invested in:

If you're reading this blog then you're probably interested in ensuring that you make the best decisions possible when it comes to your financial situation. One of the key considerations for your long term financial wellbeing is to consider your pension - I.e. How much will you need to save now in order that you can retire from working in the future.

Company pension schemes can be generous

In the UK employers are generally obliged to make contributions alongside their employees. This matching scheme can result in pension pots being built fairly quickly.

The problem is that most people sign up to their company pension scheme, make regular contributions, their companies match their contributions and then they forget about it until they reach retirement. What many people don't realise is that when you and your employer make contributions to your pension that money gets invested in a default fund.

What does this mean?

Avoiding the default fund in a pension scheme

The default fund for most company pension schemes is a Cautious fund. This means that your pension gets invested into a fund that invests in cash, bonds and other fixed income assets. These are low risk investments. On the plus side, it means that the value of your pension is unlikely to decline over time. However, it also means that your annualised growth is likely to be around 1%-2% (even less after management fees).

Quick pension advice for a company scheme

The advice is simple: when you receive information about your company pension scheme investigate what fund your pension automatically invests in. If the returns appear to be low then call up the pension scheme provider and ask for details on their other funds. There are funds available that offer higher returns for higher risks. The beauty of a pension is that you likely have a long time period with which to ride out the peaks and troughs. I am certain that there will likely be a better fund out there for you. Of course, you should always seek financial advice from a qualified financial provider if you are unsure as to what fund to invest in. However, I encourage you to personally investigate the funds available to you.

The pension is an extremely important asset in the future. A fund achieving 1% per year over a 35 year time frame may only grow to a fraction of the size of another fund offering better returns.

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