8 tips to get your expat pension into shape
As Monday grinds to a start and you find yourself, once again, sitting in angry traffic, do you daydream about driving to the beach, the golf club, anywhere but the office?
You are certainly not alone in dreaming about a life without work, but making that dream a reality doesn’t come cheap. Whether you like it or not, for most of us, it all begins with the shape of our pension.
Here are eight ways you can whip your pension into shape:
1. Start a pension!
If you are reading this and have not yet started paying into a pension – act now! You are unlikely to ever reach your retirement goals unless you have a pension in place. Research has proven time and again, that those who start saving early – almost regardless of differences in earnings – are able to retire earlier.
The more you can save the better, but, as a guide, divide the age you start saving into two and save that as a percentage of your income. So, if you are 25 you should be saving 12.5% of your wages each year. To retire at 55 you’ll need to save more, but if you are an expat living and working in a low or no tax environment this should be possible, with a little planning.
2. Use your work pension
Most good companies will offer a workplace pension scheme and will also usually pay into it themselves. This is a fantastic way to save for retirement.
Once you have signed up to the scheme, the money will be deducted straight from your pay, meaning you won’t even have to think about making the contribution yourself.
Companies will also often match your contributions up to a certain amount – so if you save 5% of your salary into the company pension scheme each month, they will add a further 5% – for free.
3. Review your pension investment
Do you know where your pension is invested? Do you have any idea whether it made money last year, or how much?
Shockingly, thousands of people have no idea where their pension money is invested. Worse still much of it is often languishing in poorly performing “lifestyle” or other badly managed funds earning barely enough to keep ahead of inflation.
If you are paying into a defined contribution scheme, you may have control over where that money is invested. Use this opportunity to move your pension into funds which are more likely to make you money.
4. …but keep an eye on cost
There are many uncontrollable variables when it comes to investing, but there is one which thing which you can manage, and that is cost.
Pensions are long term investments (until you get close to retirement of course!) and so even seemingly small costs, such as annual management fees, can really eat away at returns over time.
The first thing you need to do is understand all the costs you are paying – these include charges from the fund manager, the pension provider and an adviser. Once you know what they are, you can look at reducing them – you may need some expert help with this.
Some of the easiest costs to manage are on your investments. We recommend using index tracking funds, also known as passive funds, as these can significantly reduce costs and therefore boost returns over time.
5. Increase your pension contributions
Generally speaking, your contributions will be set at a percentage of your earnings and so will rise as you earn more. However, if you want to retire at 55 you’re going to have to push it a little harder.
Rather than just waiting until you earn more, increase your contributions by a percent or two when you can – small increases now will pay dividends in the future.
6. Consolidate and shape up your pension
The average person will now have around 11 jobs over their lifetime. This means you are likely to have started paying into more than one company pension scheme.
Consolidate these pensions into one place and make sure all your pension money is working as hard as it can. Even if there is small fee for transferring the cash, it is probably worth doing as you can then invest it properly and more efficiently – particularly as you won’t be paying separate annual charges in each scheme.
7. Know your options
When you reach the point you want to retire – the way you access your cash can make a huge difference to your retirement income. For example, making really big withdrawals right at the start or removing investment risk from your portfolio too soon, could mean you struggle in later life.
We recommend seeking expert professional advice from a qualified financial adviser when you reach this stage in life. It is one of a few occasions in life where paying for financial advice makes complete sense and can add real vale to your life.
8. Be informed
The most financial savvy are, not surprisingly, often the most well off. Understand as much as you can about how to save, where to save, charges, where to get advice, when you need advice, what investments to make and how to put your saving and investment plan into action. Knowledge is power!
Here are some resources to get you going:
How to become an expat millionaire »
Do-It-Yourself Investing: How to become your own financial adviser »
Expat pensions: The ultimate guide »
If you would like to speak to someone about your options click the link below to request a 30-minute, no obligation telephone consultation.