What do i look for in a pension?

matgreen

Im currently 23 and self emplyed as a freelance director. I am now earning a little money after a year of hard slog and am looking at starting a pension - especially as the National Pension may not be worth waiting for when i retire. I have started to look at pensions but am just baffled by the range and what they do. im also worried that the companies will go bust like pearl. can anyone advise me on what to look for in a pesion scheme.


Thanks

dunstonh

Pearl has not gone bust. They did go insolvent for a few days during the stockmarket crash but not bust. They then altered their with profit fund asset ratios to prevent that happening again. Some of their pre 1988 pensions are still first rate and cannot be beaten by current products. Although their later 1989 onwards plans are dire.

If you pick a unit linked pension, then the financial strength of the company is less important. However, most of the pension providers today still trading should be ok from that point of view.

You are self employed so you are going to get less than the average employed person as you do not get the second state pension. Only the basic one. This immediatly puts you "behind" in your planning.

There are 3 mainstream products available for your circumstances. Personal Pensions (PPP), stakeholder pensions (SHP) and Self invested personal pensions (SIPPs).

How they all work is more or less the same. They just have different rules applying to them.

PPPs allow you to invest in a range of funds offered by that provider. This can include external funds if the provider offers them.

SHPS are the same as PPPs but the Govt has set charging caps on them. These are lost cost budget pensions but can be applicable for those not normally associated with budget products (such as those closer to retirement or already retired). Even though they have a charging cap, they can be more expensive than personal pensions over the longer term so you shouldnt rule PPPs on charges alone.

SIPPs are for the more experienced person who wants to choose where they invest and that investment doesnt need to be with pension provider. If you are confused with pensions, you shouldnt start with one of these. They are currently designed for the larger fund values or those saving larger amounts each month.

Like ISAs, bonds etc where you choose to invest is a different matter to the type of wrapper discussed above. That will depend on your attitude to investment risk. A spread of areas is usually desirable so not to put all your money into one investment area.