Assuming you’re thinking about consolidating your pensions, you need to find a home for where to hold it. What might you need to bear in mind when making this decision?
Choosing a ‘Master Pension’
Firstly, cost. Most people don’t trade actively inside their pension, and I don’t suggest that you do. My standard advice is to set and forget, only rebalancing once a year, something like that. That means you don’t need to worry too much about dealing fees. You’re looking for a low-cost platform pension that does what you want it to do.
Most platforms charge on a percentage fee basis, but others charge on a flat-fee basis. Which you should choose does depend on how much you hold. For example, Hargreaves Lansdown charge 0.45% on the first £250k you hold with them. Let’s say your pot is £15,000. 0.45% of £15,000 is £67.50 per year.
Interactive Investor charge £10 per month, so that’s £120 per year. So if you have more than about £27,000 on Hargreaves, you’ll be paying more there than you would with Interactive.
Neither of those providers is a recommendation by the way, you’ll need to do your own research on that. Other percentage-based platforms are cheaper, and it’s simple maths to work out which is better.
Secondly, you want to be able to buy low-cost tracker funds. I’ve done a podcast on how to choose them back in the day. You might want to think about what funds you want to invest in first, and then choose the platform knowing you can get them.
Finally, flexibility. This is less an issue if you’re nowhere near retirement, but if you are, you want the facility for a flexible retirement when the time comes. There are all kinds of options available to you when you get to that point; what you don’t want to do is be limited by the platform you’ve chosen. You could always transfer again at the time, of course, but it’s worth bearing in mind at the very least if you’re in the home straight.
Set and Forget the Investment
Now that things are tidy in a shiny new pension plan, you need to decide how to invest it.
I am the world’s laziest investor, and that colours the way I suggest that you invest too. I know that my listeners cover a really broad range from complete novices to long-time experienced investors, so what I’m about to suggest will apply more to the those at the more inexperienced end of the spectrum. Or to those who are lazy like me.
You see, I believe that being in the market, with your money working hard is more important than the minutiae of what you actually invest into. There’s no question that equities – shares in the great companies of the world – are the main engine of growth in any portfolio.
You need to make sure that your invested in a fund which makes it easy to take advantage of this. The thing is that equities can be volatile, so you might see the value of your pension jump up and down, and that can be scary, even if you’re expecting it.
If you’re a novice investor, you need to read two books. The first is The Simple Path to Wealth by JL Collins, and the second is my own, The Meaningful Money Handbook. These will give you a decent grounding in how investing works.
Fortunately, you really don’t need to understand too much detail about how investing works, because these days there are funds which will do much of the hard work for you. I call these multi-asset portfolio funds – catchy, huh?!
Check your new pension provider’s website for the funds available to you – chances are it’ll be a dauntingly large list, but don’t give up – this is important. Search by sector if you can – you’re looking for the Mixed Investment and Flexible Investment sectors. There’s much more about how to do this in the podcast episode I did a couple of years ago, so definitely check that out.
Be careful not to tinker. Set and forget until you’re within, say, five years of retirement. Then you need to start to think about how your money’s invested, because you’re very much on the home straight.
Make sure that your current pension at work, if applicable, is also invested properly. Too many people stick with the default fund when they join their company plan. Don’t accept that – take the time to look into your options and make sure the money is working well for you.
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