What’s your number?

Do you know how much your pension is worth? Do you know how many you have or where they are? How about the type of funds they’re invested in or how much risk is involved?

I f the answer to any of these questions is ‘no’, you need to take stock and plan to review your pension at least once a year and every time your personal circumstances change. Make sure your pension is on track to grow enough to support you in retirement.

Almost three quarters of under 45s with pensions have no idea what their pension pots are currently worth. And nearly 80% say they don’t know what income they are expecting when they retire.

Run-up to retirement 
The YouGov research shows that many people don’t really know the value of their pension until they are older and in the run-up to retirement, despite the fact that they’re likely to be receiving annual pension statements.

Alongside your home, your retirement savings are likely to be one of your biggest assets. So by not keeping track of the value of your pension pots and how they are performing, you may be missing out on opportunities to take action and really are leaving yourself vulnerable at a later age.

Multiple pension pots
Keeping track of pension values is not helped by having more than one pension plan, perhaps built up over time as you move jobs. The research highlighted that 43% of people in the UK with pensions have two plans or more. Having multiple pension pots may make it more difficult for some people to get a clear picture of their total value. It could also be a reason for losing touch with a pension provider.

Managing retirement savings
Consolidating your pensions into a single pot could help and, if appropriate, may be something to consider. By the time you have been working for a number of years, you may have accumulated a number of different pensions from previous employers, and it can be hard to keep track of these pots. Having all these separate pension pots may not be the most efficient way of managing your retirement savings. Pension consolidation involves bringing all of your separate pension plans together and combining them into one single pension pot, although care is required.

Professional financial advice 
But before moving your existing pensions, you should always obtain professional financial advice to make sure you are not giving up important benefits, such as defined benefits, ‘with profits’ bonuses, guaranteed annuity rates or enhanced tax-free cash.

Pension consolidation means that you would have only one provider to keep in touch with and one annual statement to look at and review. Potentially it can also mean paying lower charges and possibly having greater choice and buying power when you come to retire too. If you eventually purchase an annuity, you may also be able to obtain a better rate if your money is all in one pension pot.

Source:
All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 2,018 adults, of which 1,361 have a pension. Fieldwork was undertaken between 9–12 August 2013.  The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERORMANCE.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

Yo-yoeffect

Almost half (47%) of Britons are up and down when it comes to money, making shrewd savings one moment to justify overspending the next, according to research from Standard Life by YouGov Plc.

The survey finds that almost half of people in Great Britain take a 5:2 diet approach to their personal finances – they adopt shrewd money-saving tactics simply to offset overspending sprees.

People most likely to take this yo-yo approach are those aged 55 or over (51%) and 18–24 year olds (48%), while 25–34 year olds are least likely, although 43% of them still ‘yo-yo’ about. Notably, those with most control of their spending and saving are adults with three or more children living in their household (41%).

Controlled spending
Looking across Britain, people in Wales (57%) and the West Midlands (53%) are the most likely to yo-yo about with their money, while people in the North East are the least likely – but 42% of them still manage their finances like a 5:2 dieter.

Knowing that so many Britons are up and down when it comes to money is slightly worrying. But it’s also encouraging to know that these same people can be shrewd cost cutters when they want to be. They just need to channel that smart behaviour so they build up a savings pot, rather than just bankroll a spending spree – that way, they can enjoy controlled spending and don’t have to feel guilty or anxious. Families certainly seem to be doing their best to avoid the financial uncertainty of the up and down of the yo-yo approach.

Recognising the challenge of ‘saving smart’ for long-term savings, such as in a pension or ISA, is important. Here are some top tips:

1. Money sitting in a savings account is likely to be losing real value, so think about checking the rates you are getting on your savings, and if you’re not already doing so, you might consider an alternative tax-efficient option such as a Stocks & Shares ISA.

2. If you’re employed, you might be automatically enrolled into a workplace pension. If you’re tempted to opt out of this, think very carefully before missing out on ‘free money’ from your employer’s contributions and generous tax benefits from the Government too.

., If you are self-employed, then you need to make your own pension arrangements. That’s something to factor into your plans when starting your own business.

4. If you have several different pensions, you might want to consider bringing them together into one. It could make it all a lot easier, so you only have to deal with one company and can see more clearly how your pension is doing – it will be less paperwork too. However, it’s not right for everyone and doesn’t guarantee a better pension. For example, you could be giving up valuable guarantees.

5. The earlier you start investing for your future, the more chance your money has to grow. If you are concerned about locking your money into a pension until you reach age 55, then tax-efficient ISAs could be considered as an alternative in the meantime.

6. Use as much of your ISA allowance as possible each tax year. From 1 July 2014, new ISA (NISA) rules apply, and you now have the chance of greater tax-efficient growth over the longer term by being able to invest up to £15,000 in the 2014/15 tax year.

7. Consider holding some money in cash to cover your outgoings (such as your rent, mortgage, food and utilities) and in case of emergencies, before looking to invest for the longer term. But make sure you are getting the best interest rate on your cash, and be wary of holding lots more money in cash than you need to – you could be investing some of it instead and giving it the potential for long-term growth in the stock market.

8. If you are dipping your toe in the stock market for the first time, then you may want to seek guidance when it comes to choosing which funds to invest in.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

What’s in your basket?

Diversifying your assets helps spread risk by lessening the potential for losses

Most investors are used to hearing the term ‘diversification’ – but it has a broader meaning than many realise. Diversification is the process of investing in areas that have little or no relation to each other. This is called a ‘low correlation’.

Spreading investment risk 
You can also invest in assets that have a negative correlation. This means that the assets will move in opposite directions to each other. Diversifying your assets helps spread risk because you’re lessening the potential for losses. If you had all of your money invested in one asset, sector or region and it began to drop in value, your investments would suffer.

By investing in assets that aren’t related to each other, while one part of your investment portfolio is falling in value, the others aren’t going the same way. Some assets may actually go up in value when others could decrease. It is also possible to diversify through investing in different markets, countries, companies and asset types.

Adverse market conditions 
Diversification is an essential part of building your investment portfolio. It can give you peace of mind that your investments will sustain in adverse market conditions and cushion losses. But it will not lessen all types of risk.

Diversification helps lessen what’s known as ‘unsystematic risk’, such as drops in the value of certain investment sectors, regions or asset types in general. But there are some events and risks that diversification cannot help with. These ‘systemic risks’ include interest rates, inflation, wars and recession. This is important to remember when building your portfolio.

Diversify by assets
Having a mix of different asset types will spread risk because their movements are either unrelated or inversely related to each other. It’s the old adage of not putting all your eggs in one basket.

Probably the best example of this is shares, or equities, and bonds. Equities are riskier than bonds and can provide growth in your portfolio, but, traditionally, when the value of shares begins to fall, bonds begin to rise, and vice versa.

Therefore, if you split your portfolio between equities and bonds, you’re spreading the risk, because when one drops, the other will rise to cushion your losses. Other asset types, such as property and commodities, move independently of each other, and investment in these areas can spread further.

Diversify by sector
Say you held shares in a UK bank in 2006. This investment may have been very rewarding, so you decide to buy more shares in other banks. When the credit crunch hit the following year sparking the banking crisis, the value of your shares in this sector (financials) would have tumbled.

So once you’ve decided on the assets you want in your portfolio, you can diversify further by investing in different sectors, preferably those that aren’t related to each other.

If the healthcare sector takes a downturn, this will not necessarily have an impact on the precious metals sector. This helps to make sure your portfolio is protected from dips in certain industries.

Diversify by geography
Investing in different regions and countries can reduce the impact of stock market movements. This means you’re not affected by the economic conditions of just one country and one government’s fiscal policies.
Many markets are not correlated with each other – if the Asian Pacific stock markets perform poorly, it doesn’t necessarily mean that the UK’s market will be negatively affected. By investing in different regions and areas, you’re spreading the risk that comes from the markets.

However, you need to be aware that diversifying in different geographical regions can add extra risk to your investment.

Developed markets like the UK and US are not as volatile as some of those in the Far East, Middle East or Africa. Investing abroad can help you diversify, but you need to be comfortable with the levels of risk that come with them.

Diversify by company
Spread your investments across a range of different companies. The same can be said for bonds and property. One of the best ways to do this is via a collective investment scheme. This type of scheme will invest in a basket of different shares, bonds, properties or currencies to spread risk around. In the case of equities, this might be 40 to 60 shares in one country, stock market or sector.

With a bond fund, you might be invested in 200 different bonds. This will be much more cost-effective than recreating it on your own and will help diversify your portfolio.

Beware of over-diversification
Holding too many assets might be more detrimental to your portfolio than good. If you over-diversify, you might not end up losing much money, but you may be holding back your capacity for growth as the proportions of your money in different investments will be too small to see much in the way of positive results.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.