"How is my pension performing?"
Building up your pension is important. But how the money inside your pension is invested can be just as important.
(If you prefer to watch a 3-minute video. Joanne has this article summarised. Scroll to the end of the page)
Many people spend years making pension contributions without regularly checking where their pension is invested, how much risk they are taking or whether their investment strategy still suits the retirement they are planning for.
At Guardian Wealth, we believe pension planning and investment planning should work together.
The question should not simply be:
“How is my pension performing?” It should also be:
“Is my pension invested appropriately for what I want it to do?”
Your Pension Is an investment
When you contribute money to a pension, that money will generally be invested for the years leading up to retirement.
Depending on your pension arrangement, your investment options may include funds investing across equities, bonds, property, cash and other assets.
For approved occupational pension schemes, Revenue’s rules recognise pension assets as investments held for the purpose of providing retirement and related benefits.
The appropriate investment strategy will vary from person to person.
Someone in their 40s with 20 years until retirement may have very different requirements from someone in their 60’s planning to access their pension within the next two or three years.
That is why your pension investment strategy should start with you, rather than with a particular fund.
4 Key Questions to Ask About Your Pension Investments
- When Are You Planning to Retire?
Your investment timeframe matters. If retirement is many years away, you may have more time to deal with periods when investment markets fall.
As you get closer to retirement, your priorities may change. You may want to reconsider the amount of investment risk you are taking and how your pension is positioned for the way you intend to use it.
The important point is that your investment strategy should not remain unchanged simply because it suited you 10 years ago.
- How Much Investment Risk Are You Comfortable Taking?
There is an important distinction between:
- how much risk you are willing to take, and
- how much risk you are financially able to take.
At Guardian Wealth, our investment planning process considers a client’s financial circumstances, assets, liabilities, preferences and attitude towards risk before aligning investments with the wider financial strategy.
For example, two company directors of the same age could have very different pension strategies.
One might have considerable savings, property and other investments outside their pension. The other might be relying heavily on their pension to provide retirement income. Their ability to absorb investment losses may therefore be very different.
- Is Your Pension Properly Diversified?
Diversification means spreading your investments rather than depending too heavily on one company, sector, country or type of asset.
It does not remove investment risk, but it can reduce your dependence on the performance of a single area.
Depending on your circumstances and pension structure, a portfolio can contain different asset classes such as:
- Global equities
- Bonds
- Property
- Technology
- Cash
- Other investments
Guardian Wealth’s existing investment planning approach specifically identifies diversification as one of the factors to consider when developing an investment strategy.
The right allocation will depend on your objectives, timeframe and attitude to risk.
- What Will You Do With Your Pension at Retirement?
Investment planning should not stop on your retirement date.
How you intend to use your pension can influence how it should be invested in the years leading up to retirement.
For example, someone who intends to access part of their pension relatively soon may require a different strategy from someone intending to keep a substantial portion invested over the longer term.
Depending on eligibility and the pension arrangement involved, an Approved Retirement Fund (ARF) may allow pension assets remaining after the appropriate retirement lump sum to continue to be invested after retirement.
This means that for many people, retirement investment planning may need to cover decades rather than simply their retirement date.
Pension Investment Planning for Company Directors and Business Owners
Company directors and business owners often have additional considerations. Your pension may form only one part of your financial position.
You may also have:
- Cash retained within your company
- Personal savings
- Property
- Existing investments
- Previous employer pensions
- More than one pension arrangement
- Plans to sell or transfer your business
- A specific target retirement date
Looking at each asset individually can give you an incomplete picture.
A better starting point is to establish the lifestyle and income you would like in retirement and work backwards. A few questions that will help your planning process are:
- What pension fund might you need?
- How much are you currently contributing?
- How is the existing fund invested?
- How much risk are you taking?
- Does the current strategy still fit your retirement date?
This turns pension investing into part of a wider financial plan rather than a collection of separate investment decisions.
Don’t Judge a Pension Fund on Performance Alone
It can be tempting to look for the pension fund that performed best last year.
Past performance, however, does not tell you whether that investment is suitable for your circumstances or what it will do next. A strong pension investment strategy should consider several factors together:
- Your retirement objectives
- Your investment time frame
- Your capacity for loss
- Your attitude towards risk
- Diversification
- Costs and charges
- Existing pension and non-pension assets
- Your plans for accessing the pension
- Regular reviews
The objective isn’t to predict what investment markets will do next.
It is to have a strategy that makes sense for your financial position and retirement plans.
When Should You Review Your Pension Investment Strategy?
Consider reviewing your investment strategy if:
- You haven’t reviewed it in the last 12 months.
- Your pension has decreased significantly in value.
- You’re approaching retirement.
- Your planned retirement date has changed.
- You’ve changed jobs or have pensions from previous employers.
- Your financial circumstances have changed.
- You’re unsure what funds your pension is invested in.
- You don’t know what fees or charges you’re paying.
- You’re concerned you’re taking too much, or too little, investment risk.
A review does not automatically mean changing your investments.
Sometimes the right decision is to leave the existing strategy in place. The important point is knowing why it remains appropriate.
Combine Your Pension and Investment Strategy
Your pension could be one of the largest financial assets you own by the time you retire.
It deserves more than an occasional glance at an annual statement. A structured pension investment plan can help you understand:
Where you are now?
Where you want to get to?
How your pension is invested?
How much risk you are taking?
And whether you remain on track?
If you have an existing pension and would like to understand how it is currently invested, Guardian Wealth can review your pension, investment strategy, performance, fees and charges.
Read more about our Investment Planning & Advice service. The page explains Guardian Wealth’s approach to investment planning, risk selection, portfolio reviews and ongoing monitoring.
Good to Know
- Past performance is not a reliable guide to future performance.
- The value of your investment may go down as well as up.
- There is no guarantee that the accumulated retirement fund will provide any specific level of retirement income.
