Pensions are becoming an ever more important topic, even among people at the start of their working lives. With fears that some of us are not putting enough money aside for future retirement, it would seem the best option is to invest for as long as you can, and to make sure that this investment is the best plan for you.
However, the world of pensions can seem a little murky to the uninitiated, and with the huge amount of claims related to people who feel they have been sold the wrong type of pension for them by financial advisors, it’s a good idea to know the key differences before you start discussing your options.
Before deciding on a specific plan, you need to establish whether you want a Self-Invested Personal Pension (SIPP), or a stakeholder pension.
Who is a Stakeholder Pension Right For?
Stakeholder pensions are aimed at people with lower incomes and people with unpredictable earnings or working patterns (for example people who want to take periods of time off work for things like studying, travelling or having children) or who may not want to commit to investing a high amount every month.
There is a cap on how much you can invest of £40,000 per year (this reduces to only £3,600 if you don’t pay tax), but you can start with as little as £20 per month and won’t be penalised for breaks in contributions. Stakeholder pensions have low charges, and can be relatively simple to manage, also making them a good option for people who just want to pay into their fund.
Who is a SIPP Suitable For?
SIPPs are more flexible schemes where you actively manage where your money is invested. Also, you can get a wide range of options to choose from that includes shares, commodities and more. They tend to be favoured by high-income earners, however there are now plenty of low cost SIPPs which are designed to appeal to mid-range earners that want flexibility and are interested in managing their own fund.
Not Sure Where to Head?
If you still aren’t sure which plan is right for you, it could be worth speaking to a financial expert like Bestinvest,to assist you in your decision making. For instance, if you are a high earner but don’t want to manage your own portfolio, or you’re a middle-income person who is undecided, such firms can provide the help you need.
Remember though, whether you seek external support or sort this yourself, it’s important you research your options thoroughly before you make a choice.