If you have a workplace pension, do you know how it’s been invested?
Many people’s pension money is sitting in a default pension fund. While they’re suitable for some people, they might not work for everyone. Here’s what you need to know.
How are default pension investments chosen?
When a workplace pension is set up, the pension provider chooses to invest the pension contributions into a fund (or multiple funds) which they’ll have chosen to cater for the needs of the average employee.
There are various benefits to doing this. Firstly, it means your pension money will be invested from the off – as soon as you join the company scheme. Secondly, with both employers and pension trustees obliged to do the right thing for their clients, you can be certain that the funds will have been chosen carefully, and will be under constant scrutiny.
However, there is another option.
Remember, default pension schemes are very much a “one size fits all” option. The investments chosen are normally on the cautious side which may suit some, but not others.
If you have specific retirement goals in mind – or if you’re younger with a good few decades before you retire – you may be considering the self-select option. Here, you choose the funds you want your pension pot to be invested in – either with or without the help of a financial advisor.
With pension funds, like any other investment, having the ability to go down as well as up, there is by nature an element of risk in going down the self-select route. However, with 95% of defined contribution pension scheme members still invested in the default strategy of their scheme, it may be a lack of awareness of the options that’s preventing people from taking a closer look at where their pension contributions are going.
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