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Investing Pension Lump Sums

Your pension is probably one of the largest assets you have. In many cases, the value of a person’s pension can exceed the value of their house.

Louis Coke


Your pension is probably one of the largest assets you have. In many cases, the value of a person’s pension can exceed the value of their house.

So how do you effectively manage this pot? Do you aim for capital growth? Or income? Do you take a cautious approach? Or is it the time to be more adventurous?

These are the questions we come across on a daily basis with new clients looking to maximise the potential of their pensions. The answers are not straightforward but with the right help from the right professional advisers, you can come up with a plan for your retirement, your pension and potentially even for passing wealth to future generations.

Investing a pension lump sum involves a number of factors but at its most basic level it can be distilled down to a few main points:

  • How much risk are you willing to take
  • When do you think you will be taking benefits from your pension (this may not be known)
  •  How much pension income do you think you will need in retirement?

The first one is rather difficult to pinpoint, however, a very good starting point is to speak to your Financial Adviser and/or Investment Manager. They can give you information on how various asset classes have behaved historically and most firms have a ‘risk questionnaire’ which you can complete. The questionnaire does not give a definitive answer, it is meant to test your responses to various different outcomes to get you thinking about how you would react in times of very good and very poor returns.

The second point rather depends on your individual circumstances. Are you thinking of taking benefits when you are 55? How many years does that leave you to grow the fund? How much income are you likely to want to take? Alternatively, you may feel that you have other income you can live from (other investment income, buy to let property and so on) and as such, do you need to turn on the pension now?

This leads neatly on to the last point about taking pension benefits, or an income from your pension. Whilst the new pensions freedom rules mean you are no longer regulated by government GAD rates on how much of your pension you are allowed to take, there are other factors to consider. These include (but are not limited to) income tax considerations, fund depletion (i.e. how long can your fund last whilst paying you an income) and the amount of natural income being generated by your pension fund, versus the amount you are taking out. The role of a Financial Adviser is crucial here. We look after many clients who have been through this process with their financial adviser, who then entrust us to manage their funds to deliver on their pension plans.

In conclusion, investing your pension lump sum, whether that be in the form of a SIPP or a final salary transfer out, is not something to be taken lightly. There are many factors to consider but taking time now to decide the right strategy is the best way forward. You will need trust in your Financial Adviser and your chosen Discretionary Fund Manager. We are delighted and privileged to be such a trusted adviser by many clients. A clear strategy and regular review meetings are vital. The new world of pensions freedom is a very exciting one but it is a move away from the traditional ‘safety net’ of government controlled withdrawal amounts. Use this new freedom wisely to maximise your pension pot, and options in retirement.

My team and I are fortunate enough to look after many pensions on behalf of our clients. If you would like to speak to us about maximising your pension pot, please contact me.

This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. If you are unsure of the suitability of your investment please seek professional advice.

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