THERE can be little doubt that we are a nation of savers. Indeed, our love affair with cash seems to be as strong as ever despite interest rates having languished at or near rock bottom for the past decade. Recent statistics from HMRC showed that cash ISA subscriptions for 2017/18 continued to represent nearly three quarters (72 per cent) of all ISA subscriptions for that tax year.
But while many people see themselves as savers very few would think of themselves as investors. This has always struck me as being rather peculiar. The majority of the population will have savings in cash but many will also have a workplace pension scheme, which will typically invest your pension contributions into a fund or a series of funds.
In fact, with the introduction of auto-enrolment, the number of people with a pension and therefore some form of investment has proliferated in recent years and as a result there are perhaps more investors than ever before.
Indeed, in 2018 The Pensions Regulator (TPR) estimated that 9.5 million people had been auto-enrolled into a workplace scheme.
However, while most people tend to keep a keen eye on their bank account and will know what goes in and out, very little will have given much thought about having been enrolled into a workplace pension and even more will be unaware of what their workplace pension holds.
We therefore have potentially created an army of unwitting investors who have rarely thought about or are unaware of their workplace pension scheme let alone the underlying investments.
Most people check their bank account and savings regularly so why wouldn’t you pay the same attention to your pension?
While it is easy to put off thinking about your pension and your retirement, not checking your workplace pension and the investments that you hold in the scheme could have some serious consequences on your retirement and your ability to enjoy it. So what can you do?
When it comes to your workplace pension scheme, most people will be invested in what’s typically referred to as a default fund. These funds tend to invest in a mix of assets such as stocks and shares, bonds, property and currency.
However, because a default fund needs to cater for the broad demographic of the workplace it will typically be designed as a catch-all proposition that delivers a balanced portfolio that takes a moderate amount of investment risk. As a result and by its nature, it’s unlikely to be a suitable investment for everyone’s needs so it’s well worth thinking about whether the default fund your pension scheme has chosen is suitable for you. If it’s not, then it’s worth considering switching to a different fund.
For example, if you are in the early or mid-stages of your working life and have a few decades until you retire then you can afford to take on more investment risk. A a higher-risk fund, such as one that has a higher allocation to equities, could be more suitable than a default balanced fund. While the idea of taking more investment risk might make people feel uncomfortable, it should be recognised that there is also a real danger that people don’t take enough risk in their pension to generate the necessary returns to grow their pension pots sufficiently.
Another important consideration for those with a workplace pension scheme is to think about increasing your contributions. Many employers will match the contributions you make into your workplace pension up to a certain level. This can have a dramatic impact on how quickly your pension pot grows and is therefore something that is well worth exploring.
Of course, deciding what investments to hold in your pension and how much to put if your pension can be complicated. If you’re ever unsure then it’s well worth seeking professional financial advice.
If anyone is in doubt about the value of financial advice, recent research from the International Longevity Centre showed that those who received financial advice accumulated around 20 per cent more financial and pension assets than those who hadn’t – a difference that is too significant to ignore.
Alex Montgomery is head of wealth management at 7IM.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here