HELP! 23 and confused about pensions!

SiobhanEloise

Hi! So i am 23 and about to start my new job. Theyre signing me up to a pension and i will also be putting in but, what im confused about is i have to choose how to invest this money. I have three options which are ANNUITY, CASH OR DRAWDOWN and if i dont pick one then they will pick annuity for me. Which is the lowest risk, best option for me? I just dont understand it all!

Thanks!

Eagles1905

Hi There.

First of all, I wouldn't worry this early in your working career, the fact you are contributing into a pension early on is a great start and you have plenty of time to research what you want to do when you eventually retire.

Check the pensions advise service online as they've got some great guides.

Personally I plan on taking a small pension I have as a lump sum and using my main one to draw an income post retirement. Only 30 something years to go......

Good luck!

AlanP_2

The choice you make now can be changed when you get closer to retirement so don't fret too much about it, they won't hold you to your choice in 40 or so years time.

dunstonh

It looks like you are using a selection wizard for basic investment fund options (typically seen on workplace pensions and some robo-advice services with basic offerings). These typically want to know what your future intention is. You are not held it to it. It is just to get the lifestyling risk reductions positioned in line with your expectation.

Which is the lowest risk, best option for me?

Which risks are you referring to?
At age 23, low investment risk equates to high inflation risk and high shortfall risk. Whereas high investment risk = low inflation risk and lower shortfall risk.

OldMusicGuy

Those choices aren't how you invest the money, they are how you take it out of the pension when you are over 55. So don't worry too much about that right now, like others said, you can change the option closer to the time. If you want a choice, take drawdown as it gives you the most flexibility.

The more important choice is how it is invested, and they should be giving you some choices usually based on some kind of risk profile (eg low risk, medium risk, high risk or something like cautious, moderate, adventurous). So you need to clarify that, as you are not talking about investment choices here.

kidmugsy

(1) Aim to contribute enough to get the max employer contribution. That's probably what you've signed up for, so that's OK.
(2) As OMG said, tick the box for "drawdown". Rethink the problem in thirty years time, or whenever a huge pension reform is reported in the papers.
(3) OMG says it's your choice of investment type that matters; quite right. You are very young and, presumably, contributing monthly so your best bet is probably adventurous/high risk/... or whatever they call it.

AnotherJoe

Was going to reply but OMG said it succinctly.

Read it until you understand, if you dont, ask questions.
Pick the riskiest option for investment. It wont actually be that risky anyway.

atush

Which is the lowest risk, best option for me?

Why at your very young age, wih decades to go are you being cautious? At your age, it is better to be more adventurous/higher risk as you have all those years ahead for compounding returns?

OldMusicGuy

Talking about risk choices, here's some thoughts:

- Like atush said, the general advice is that young people should take riskier options because they have a long time until they retire. There may be more ups and downs, but in the long run you are likely to get more growth.

- For the last 15-20 years, I have chosen low risk investment options with my pension. I regret that, because I have just retired (age 60) and wish I had been more aggressive in my choices at age 40 ish. I would be in a better position financially now. I have low risk investments now, but I am 60 and retired, so in a very different situation to a 23 year old starting out.

- My son is 21 and just started his pension. He was offered 5 investment choices for his monthly contributions, ranked from low risk (1) through to high risk (5). He chose option 4.

Alibert

I am 55 but still feel that I am playing a long game with my pension fund .. according to this
https://www.confused.com/life-insurance/life-expectancy-calculator
I should plan to live to 89
Which means I need to invest with a 35 yr time horizon.

(It also highlights how harsh the LTA is)