If you would like to learn how to make your pension work for you, then read on …..
Recent research has found that just under half (48%) of adults in the UK save less than £50 a month, and only a third believe they’re putting away enough for the future. And it’s not just the younger generation – only 22% of adults aged between 45 and 54 think they are saving enough, compared with 35% of those between 55 and 64.
The state of retirement planning in the UK is worrying, at best. People just aren’t saving enough and they’re leaving it way too late. With Brexit looming and the accompanying economic uncertainty, it’s more important than ever to explore different investment options to support pension saving. Savings aren’t just a nest-egg for later – they help you enjoy your life more right now by providing comfort in uncertain times. And those who make the effort to save should have their investments work hard for them.
How To Make Your Pension Work For You
The good news is that there are things you can do right away to add to your retirement pot. Some tried and tested tips to boost your retirement savings include:
Explore the Power of Compound Interest
Compound interest is interest earned on interest. For example, say you save £1,000 at a 2% annual interest rate, you’ll earn £20 every year. By comparison, with compound interest, by the second year, your ISA would earn 2% interest on £1,020 which equals £20.40, and so on and so forth. Your investment continues to increase, as does the interest that you earn.
The main benefit of compound interest (besides the simple fact of boosting long-term savings) is that it can help beat inflation. Often, interest rates on ISAs and other savings vehicles are simply matched or beaten by inflation over time. With compound interest rates, you’re more likely to beat it, so it’s worth looking for investment opportunities that allow for it.
Assess the Risk-Reward Ratio of your Chosen Investment
When it comes to investment, usually, the higher the risk, the higher the returns. But those who are risk-averse shouldn’t be punished with paltry interest rates. For example, cash ISAs are a relatively risk-free investment, but they come with very low interest rates. By comparison, stocks and shares ISAs have more risk attached to them but have a higher interest rate (although they’re covered by the FSCS). Ultimately, all investments carry a certain degree of risk, but some are more secure than others.
Security needs to come from your chosen investment platform. For example, some peer-t- peer property platforms have a legal charge against the borrower’s property to protect from a borrower defaulting on a loan. Others will have a reserve fund to pay out any compensation to investors in the event of loan defaults. Either way, it’s important to investigate and understand the security measures that are in place for your investment, so that you can decide whether it’s worth the risk.
Look at Alternatives to Traditional Savings Accounts
The investment market has changed significantly over the last decade. Not too long ago, the main investment vehicles for pensioners and retirees were lifetime ISAs and cash ISAs, but now there is so much more on offer. Peer to peer (P2P) lending allows you to lend money to individuals or businesses via platforms that match lenders with borrowers. For example, a P2P property platform will let you invest from £1,000 in a property, in the form of a short-term bridging loan to a homeowner or to a property development project. Interest rates go up to 10% per year (depending on the assessed level of risk) and you don’t have to find tenants, manage the property or pay any agent fees. It really is that simple, and there are a lot of platforms to choose from.
Diversify your Portfolio of Investments
As a general rule, you don’t want to have all your eggs in one basket. Spreading your investments will help to decrease risk and should, in turn, increase your returns. That way, you can have some with higher risk (and higher returns) and still have some with lower risk, to ensure that no matter what happens, you will get decent returns on your investments.
Re-evaluate your Current Pension Situation – Is it Working Hard Enough for You?
You should be constantly reviewing your pension plans to see if they are working hard enough for you. If you’re confident in how much your work is contributing, you might want to add more to the pot. Either way, you should take control of your pension and make it a more active part of your portfolio. It doesn’t have to sit idly gathering dust – it can work hard for you, if you use it wisely.
It’s time for the UK to get saving. Think about your pensions wisely to make sure it’s been worth saving all these years. After all, you worked hard for your money, so why shouldn’t it work hard for you?
By Frazer Fearnhead, CEO of property investment platform The House Crowd
