The cost of a moderate retirement for couples now sits at £36,480 a year, according to new data.
In the UK, 12.2 million households don’t have the pension savings required to retire at this “moderate” financial threshold.
Planning for retirement might seem like a distant concern, especially for younger adults, but the sooner you start thinking about your pension the better. Not only will you have more time for your nest egg to grow, but you’ll also have peace of mind knowing your future self is taken care of.
In today’s world, many of us are also increasingly concerned about the environment and social responsibility. The good news is, you can get your pension on track for a comfortable retirement while aligning your investments with sustainable practices.
Here are some top tips:
1. Understand your workplace pension
The first step is to grasp what you’re currently working with. Familiarise yourself with your employer’s pension scheme. Find out what type of pension it is, defined contribution (commonly known as a personal pension) or defined benefit (also known as final salary), how much you and your employer are contributing, and where the money is being invested. Many pension providers offer online portals where you can access this information easily.
*Workplace pensions are regulated by The Pensions Regulator.
2. Increase your contributions (if possible)
Even small increases in your contributions can significantly impact your pension pot over time. Look at your budget and see if you can afford to bump up your contributions by one to two per cent. Remember, these contributions are typically made before tax, lessening the sting. If your workplace pension scheme doesn’t allow you to do this, then you can investigate the option of setting up your own private pension.
3. Make use of employer matching
Many employers offer matching contributions, essentially giving you free money! Don’t miss out on this valuable benefit. Contribute enough to maximise your employer’s match. It’s like getting an instant return on your investment.
4. Escape the ‘default’ option
More than nine in 10 people remain in their workplace pension providers’ ‘default’ investment option. This is unlikely to be the most sustainable choice. Engage with your plan to learn more about where you could invest your potential to better align with your values.
5. Regularly review your pension
Don’t ‘set it and forget it’. Your financial situation and risk tolerance may change over time. It’s wise to review your pension plan at least annually. This allows you to adjust your contributions, investment strategy, and overall retirement goals as needed.
6. Seek professional advice (if needed)
Pensions can be complex, and navigating the different options can be overwhelming. If you feel unsure about any aspect of your pension, consider seeking professional financial advice. A qualified adviser can help you understand your specific situation and develop a personalised plan to achieve your retirement goals.
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Sustainable investing terminology
It can be challenging to interpret all the terminology around sustainable pensions. Some funds labelled ‘green’ may not be quite as they seem.
Here are some terms you might encounter when exploring sustainable investment options for your pension:
Responsible investments: This is where holdings deemed to harm People or Planet are filtered out, usually through excluding certain sectors of the
economy.
Sustainable investments: Here, sustainability factors form a core part of the investment decision process.
Impact investments: These investments are chosen based on their opportunity to deliver a measurable positive impact on environmental and
social factors.
Getting your pension on track for a sustainable future is a marathon, not a sprint. Start early, make informed decisions, and don’t be afraid to seek help. By following these tips, you can ensure a comfortable retirement while making a positive impact on the world.
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At Switchfoot Wealth, we provide support for individuals and businesses looking for a long-term plan in a changing climate. Contact us today to learn more.
*Your capital is at risk. A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
