Clare Stinton, head of workplace saving analysis, Hargreaves Lansdown: “If you have a pension, you’re an investor. Unfortunately, most people don’t realise this, so they risk missing a golden opportunity to take control of their retirement planning.
Understanding more about their how their pension is invested can help people appreciate its growth potential and make the most of their contributions.
When we break it down by gender, women are far less likely to know their pension is invested. Alongside contribution rates investment performance plays a huge role in determining how much you’ll retire with, and given that women, typically retire with far less than men, understanding where their pension is invested, could be a powerful first step toward closing the gender pension gap.
Get to know your default fund
A key reason why people may not realise their pension is invested is because they’ve never had to make an investment decision about it. When you are automatically put into a workplace pension by your employer your money is typically placed into a default fund. These funds are designed to be solid, steady, and diversified, meaning your money is spread across a range of different investments, helping to cushion you from market ups and downs.
But by nature, default funds are built to be a one-size-fits-all solution. They have to work just as well for the 22-year-old starting their first job, as they do for a 50-year-old joining a pension scheme later in life. These two people have very different timelines to retirement, as well as investment goals and values. The default fund is designed to be a solid hands-off option but they aren’t tailored to you individually.
Understand your options
If you wish, most pension providers give you the choice to take more control, many offering alternative funds that may better match your risk appetite. If you want to find out more then you can speak to your provider to see what educational resources they can offer you such as webinars, fund factsheets or articles. You many also wish to speak to a financial adviser to make sure you’re comfortable with how you’re invested.
Generally, the greater the weighting to shares in a fund, the higher the risk—but also the potential for higher returns. With greater potential comes the likelihood of experiencing market fluctuations, so it’s really important you’re comfortable with the idea that investments can fall as well as rise.
It’s not just about risk and return, values matter too. More people want their pension to reflect their values and what they stand for. That’s why many providers now offer the opportunity to invest in responsible funds, letting you steer clear of companies linked to things like weapons manufacturing, human rights abuses, or environmental harm.
Your pension is more than a pot of money – it’s an investment. The question is, is it working hard enough for you? Small decisions today can make a big difference to your tomorrow.”
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