Pensions

A pension is an amount of money used by a person once they have retired from working and no longer receive a salary as an income. Workers pay in an amount of money at either regular or infrequent times depending upon their choice and other commitments, which not only increases the size of the 'pension pot' over time, but is also hopefully increased through investments such as stocks and shares which increase in value and/or pay dividends. Once a person reaches pensionable age they can purchase an annuity which is dependent upon the amount that they have accumulated. This annuity is a fixed sum each year which is guaranteed for life, but the amount that is determined will depend upon the annuity rates at the time it is purchased.

There is some debate as to whether a pension or property is the best option for funding retirement. Both have their drawbacks, in that each can actually reduce in value should property prices or the stock market fall. When it comes to pensions, it is usually wise to re-allocate investments from more riskier company shares to 'safer' corporate bonds and cash, although even these can lose their value. Perhaps the best answer, as is the case with most aspects of financial and money matter, is to not put all your eggs in one basket and diversify your assets over a number of sources to include a pension scheme, property, and cash in tax efficient savings accounts such as ISAs.

As well as having a financial advisor and pension manager invest your pension money for you, it is also possible to do it yourself in the form of a Self Invested Personal Pension (SIPP). Whilst this gives you much greater control over where your money is invested, which is particularly useful if you have specific criteria for investing such as in ethical companies only, it can be a risk if you do not know what you are doing. Whilst it is true that even a financial expert can lose money on your investments, they are likely to have a greater knowledge and so a better chance of not losing it than somebody who has little knowledge of stock market investing.