Pension Investments: The Rules and Regulations Explained

The security of a state pension can tempt many people into putting off personal pension investments. But the sooner you start saving, the better off you will be when the time comes to retire. This will enable you to enjoy your retirement with friends and family and save for essential outgoings like paying for your care home.  

The prospect of looking into the rules and regulations of pension investment can be daunting for some, so it’s useful to have a breakdown of what you need to know.

You don’t need to be a financial expert to benefit from being armed with just a little knowledge.

Understanding pension investments

1. Defined contribution pensions

A standard defined benefit scheme or defined contribution pension is a pension scheme provided by your employer. You won’t have to make any choices about where and how your contributions are invested if you don’t want to, because investment choices will be automatically taken care of by your employer’s chosen pension provider.

This can be a low-effort way to save for your retirement, but remember that you can choose the type of funds from the options they offer, and you might opt to spread your investment between cash, shares or bonds, or any combination.

2. Self-invested pensions

This type of pension is more flexible and provides you with greater investment powers. They can attract higher rates in return for this flexibility, but there is currently no restriction on the number of pension schemes you take out, so you can combine a defined benefit scheme with any number of personal investments.

3. Long-term investments

Investing in shares can be an excellent way to increase funding for care homes and other long-term investment concerns, since the longer you invest, the higher the chance that your shares can provide a greater return.

Whilst it is important to keep in mind that while there are no guarantees with the stock market, shares have historically shown a great track record in increasing their value when compared to cash or bonds. Including at least some long-term shares in your portfolio is advisable if you want your pension fund to grow in line with inflation.

Our pension investment advice

Your pension investments should change with your needs

As time goes on, you’ll want to think about adapting your pension investments to suit your stage of life. The older you get, the less high risk you will want your investments to be. By slowly transferring your investments from shares into majority bonds and cash, you can enjoy greater peace of mind as you near retirement.

Many pension schemes will incorporate this transferring of funds as part of the service they offer. This is often referred to as a “lifestyle” fund.

Checking in every year

Whether or not you have a lot of capital to invest, with some expert guidance you can keep your pension and investments on track by doing an annual check up. Key things to ask yourself are if your circumstances have changed, whether you anticipate needing access to a lump sum in the near future, and whether or not you wish to diversify your investments with a self-invested personal pension.

Keep in mind that there is such a thing as over-diversifying. You will certainly want to obtain expert advice when it comes to something as important as your pension investment portfolio.

Regulating the risks

Depending on how much you have to invest, you may want to look at investing in higher risk options for the possibility of higher returns. Most pension scheme providers will carefully assess an investment opportunity’s risk profile and work hard to keep it to a level that is appropriate to your total capital. Good high-risk fund managers will scour the market on your behalf without being reckless with your money. In light of this, it’s important to choose your fund management team with care.

When it comes to pension investments, timing is everything. A good asset manager will know how to diversify your funds. They will also know when to transfer them and how to manage your funds in line with your lifestyle. It’s important to have a scheme provider or fund manager you can trust who will provide the best return with a risk level that is right for you.

Expert Wealth Management provides independent financial advice tailored to the individual needs and circumstances of every client. Receive personalised pension investment advice. This will enable you to plan realistically for your big dreams and practical needs of retirement.

As a first step to planning for your retirement, download our helpful guide using the button below. It’s free, and it tells you everything you need to know to make sure you’re comfortable later on in life.

Start planning for your retirement – find out more



About the Author

Dom is a qualified and experienced Chartered Financial Planner (CII) and Chartered Wealth Manager CFP (CISI) and a Registered Life Planner (Kinder Institute) with over 30 years experience. His work primarily focuses on retirement income planning, helping clients to maintain financial dignity and independence in retirement. Read more from Dominic...
This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
This is my first venture into any kind of personal finance. Your candour and patience with me are very much appreciated. A.S. (London)

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