A financial planner reveals the questions 30-year olds should be asking to sense-check their pensions.<\/p>\n
The 30s are a turning point as people\u2019s relationship with money matures, \u2018reality hits\u2019, and big life changes such as mortgages, family and children start to compete for income. It\u2019s easy for long-term planning to fall by the wayside, but this is exactly when pensions need to move up the priority list.<\/p>\n
As EQ Investors financial planner Zoe Brett put it: \u201cYour 30s is definitely the time to start getting serious about pension planning. Time is still on your side \u2013 but by your 40s, it\u2019s already an emergency.\u201d<\/p>\n
At this stage, Brett said, people should start looking at all the pension pots they\u2019ve accumulated and sense-checking the basics: Should they be consolidated? Are they performing well? What are the charges?<\/p>\n
That sense of urgency often starts when people run the numbers for the first time. According to the latest data by the Pensions and Lifetime Savings Association (PLSA)<\/a>, a single person will need \u00a331,300 a year for a moderate retirement lifestyle \u2013 and that rises to \u00a343,100 for a comfortable one. For many, those figures can come as a shock.<\/p>\n Below, we look at the most crucial questions everyone in their 30s should ask themselves to make sure they can maintain their expected lifestyle well beyond their working life.<\/p>\n \u00a0<\/p>\n How much am I contributing?<\/strong><\/p>\n Brett pointed to the \u201creally good rule of thumb\u201d of contributing half one\u2019s age to their pension \u2013 10% in your 20s, 15% in your 30s and so on.<\/p>\n However, contributing that much can make a massive dent in your income.<\/p>\n \u201cI know I would definitely feel it if somebody took away 15% of my income, so yes, there’s that aspect to take into account,\u201d she admitted.<\/p>\n \u201cHowever, this is a time in your life when you are starting to earn more money, perhaps have some extra resources that you can throw at it. As an incentive, remember that in your 30s, you still have the opportunity to have a relatively leisurely journey into retirement.\u201d<\/p>\n \u00a0<\/strong><\/p>\n Should I be consolidating?<\/strong><\/p>\n It\u2019s likely that 30-year olds will have more than one pension pot to their name, one for each of the employers they have had since they started working.<\/p>\n Different pensions will have different benefits, rules and structures, so there is no one-size-fits-all argument. But for 80% of people, consolidating will be the way to go, said Brett.<\/p>\n \u201cHaving one pot is more straightforward both for the investor and the adviser \u2013 it is much better from an administrative point of view and you can have one, cohesive investment strategy behind it. It also brings charges down,\u201d she said.<\/p>\n Beyond individual preferences, there are broader reasons why someone might want to keep their pensions split. For instance, they may wish to keep one sustainable pension and one conventional one.<\/p>\n Another argument is to reduce risk by spreading money across providers in case one goes under \u2013 though Brett was sceptical of this, noting that the risk of default is low and funds are protected by the Financial Services Compensation Scheme (FSCS).<\/p>\n \u00a0<\/strong><\/p>\n Are my charges fair?<\/strong><\/p>\n Charges play \u201ca huge role\u201d, said Brett. Workplace pensions usually have low charges because either the employer picks up some of the cost or, alternatively, providers give them discounts for the business they bring in.<\/p>\n Typically with workplace pensions, charges are around 0.5%.<\/p>\n However, there are a lot of products out there with very high charges that are no better or worse than other, perfectly reasonably charged, products. Ultimately, charges eat into profits and growth, so that\u2019s \u201csomething to keep an eye on for certain\u201d.<\/p>\n \u201cIf your costs are getting over 2.5%, factoring in your product, your investments and your advice, you really need to start looking at the value that that is adding,\u201d she said.<\/p>\n \u201cFor a workplace pension, 0.75% would be the upper end.\u201d<\/p>\n \u00a0<\/strong><\/p>\n Am I taking enough risk?<\/strong><\/p>\n In your 20s, 30s and even 40s, you can afford to take \u201ca lot more risk\u201d, according to the planner.<\/p>\n \u201cJust take the risk. Don’t worry about it. Don’t look at it. Don’t tear yourself up with the volatility. It’s all going to be all right,\u201d she concluded.<\/p>\n \u00a0<\/strong><\/p>\n Am I on track with my goals?<\/strong><\/p>\n If behind on their goals, the key thing for people is to not bury their head in the sand, according to Brett.<\/p>\n \u201cWhen you realise you are behind, you’ve actually done the hardest part of it \u2013acknowledging and accepting that there is a problem. It’s a big mental breakthrough to think: I could go from my working life into absolute poverty,\u201d she said.<\/p>\n \u201cEven if you can only do a small amount, then that’s absolutely fine. Just start. You just need to start with something and get some momentum going.\u201d<\/p>\n One thing that might make up for lost time is to start saving more each year with salary increases as one financial planner recently recommended doing on Trustnet<\/a>.<\/p>\n \u201cThese tiny wins and re-budgeting, committing even just \u00a350 or \u00a3100 a month, over time, it will add up,\u201d Brett concluded.<\/p>\n \u00a0<\/p>\n