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Back to basics: Five top tips for pension planning



A few simple steps could make all the difference to your pension

3 min read

You could be invested in a pension for 20 to 30 years, so a few simple changes could make a big difference to your returns.

Pensions should form a key part of your financial planning. As we've previously pointed out, everyone has an Annual Allowance of pension contributions that attract tax relief. This tax relief can add substantially to a defined contribution pension pot over the long-term.

Making the most of the reliefs available to you – by paying into your workplace scheme if you have one, or using a private pension such as a self-invested pension plan (SIPP)– could help build up a significant sum for later in life.

Here are five things you might want to think about as you plan for life after your career:


1.  Start early

As with any other investment, the longer you’re invested the more time you’re allowing for your investments to potentially grow. What’s more, starting a pension early means you’ll also be taking advantage of your Annual Allowance each time and getting the full, long-term benefit of tax relief on your contributions.


2.  Diversify!

Diversifying your risks can play a key role for investors. That’s why it’s one of the investment principles we rely on to guide our investment decisions.

Investing in a mix of shares in companies from different countries and sectors, and in government and commercial bonds, is known over the longer term to balance your risks better and to increase the chances of preserving and growing your wealth. Of course, the value of investments can go down as well as up even for diversified portfolios.

“Pensions should form a key part of your financial planning.”

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3.  Minimise fees

Fees can impact returns for investors. Some pensions – particularly older schemes – have high annual management charges and pension wrapper fees, which when combined can make a substantial dent in your final pension pot.

If you have existing pensions, it’s worth reviewing the charges and performance to determine if you’re getting good value for money. Transferring to a better value scheme could be one way to improve your potential long-term outcome.

Before making transfers, you should check if there’s a transfer fee and also that there aren’t any other valuable benefits attached to your existing pension that you’ll lose. For example, some older schemes provide a guaranteed rate of return when you take your benefits that would mean you would probably be worse off if you transferred. If you’re not certain about the best course of action, you should seek advice from your wealth manager or an independent financial adviser.


4.  Keep topping up

Making the most of your pension isn’t just a matter of one and done. Because your annual allowance re-sets every year, it makes sense to keep contributing if you can, either as a lump sum or by setting up regular savings.

You can even keep contributing after you officially – or unofficially – retire and continue to benefit from tax relief on your contributions until you turn 75.

While you’re contributing, though, keep in mind the Lifetime Allowance. This is the maximum amount you can receive in pension benefits from your pension plans before being subject to an additional tax charge. It’s currently £1,030,000 for the 2018/19 tax year, and will increase each year based on the rate of inflation.


5.  Let it ride

As we point out in our article Time to take your pension , one of the best ways to make the most of your pension could be to leave it invested. When you start taking your benefits, you trigger contribution restrictions that reduce your Annual Allowance. It could be better to live off other income and investments, if you have them, and leave your pension to accumulate while you continue to take advantage of tax relief on contributions.


Don’t leave your long-term future to chance

Pensions aren’t the only way to try and preserve your wealth in the long term. For example, you should also make sure you use your annual ISA allowance (£20,000 for the 2018/19 tax year).

Whichever way you choose to invest for the long term, it’s important to make decisions that are the most appropriate for you and your family.


Tax reliefs referred to are those applying to UK residents under current legislation, which may change. The availability and value of any tax reliefs will depend on your individual circumstances.

When investing, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. 

Investing through a pension should be a key element of your long-term plans to preserve your wealth. Since you could be investing through a pension for 20-30 years, a few simple steps could make a big difference to your returns: start investing as early as you can; invest in a diversified portfolio; minimise fund charges and pension wrapper fees; keep topping up your pension pot; and stay invested as long as possible. 

About Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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