Pension saving is often undertaken years before a person actually leaves the workforce in preparation for later life. Many Britons will have workplace arrangements due to auto-enrolment, but may also need to manage a personal private pension, too. As such, juggling different funds may be a challenge, where people do not have a full understanding of the risks and charges they could come up against.
Express.co.uk spoke to Lee Platt, Senior Wealth Planner at Barclays Wealth, who provided insight into the risks and charges Britons may be forced to confront.
He said: “In terms of risks, of course, one of the fundamental ones is how the money inside a pension is managed – what types of investment is that money sitting in?
“The type of investments and their performance can have a significant impact on the value of a pension.
“There are going to be a lot of people out there who haven’t had their pension reviewed, and so may not understand what investments make up their savings.
“This can be dangerous as your investments may not be in line with the amount of risk you feel comfortable in taking.”
Of course, another important point of consideration is the risk of the market – with research undertaken by Hargreaves Lansdown in 2019 revealing many did not even know where their pension is invested.
Having an understanding of the potential volatility of investments is key to help Britons manage their pension.
“If you aren’t reviewing, and the years tick by, you could have been in an environment where you are taking more risk than you wanted, or conversely, less risk than you want and your performance isn’t in line with expectations.”
But reviewing can also mean important changes need to take place, especially as a person moves closer to their retirement.
Mr Platt explained that the closer people get to leaving the workforce, the more important reviewing the risk of a pension is.
This is because individuals may need to de-risk and move money into investments which are not deemed to be as volatile.
However, alongside the risks associated with pension saving, Britons will also have to reckon with fees and charges.
These could affect the sum people ultimately receive in retirement, and so awareness is key.
Mr Platt concluded: “Fees and charges come down to the pension contract, and there are various types.
“Some contracts are older, and some will have a more punitive charging structure than newer ones.
“There are also charges which may be incurred depending on the investments which are held – which can vary depending on what type of investments they are.
“Another key factor is whether the investments are being managed on your behalf – in which case you will pay a higher cost, or are the investments passive?
“Reviewing is therefore important, as you must understand ongoing charges.
“If you are in any doubt about fees, charges, or the risks you want to take, then you should always seek advice on the matter for further understanding.”