FT Adviser (04/07/2019) – Starting to save for later life can involve several stages.
The process by which individuals build their pension pots is called accumulation.
While several choices exist depending on people’s different desired lifestyles, how do individuals make sure they make the right accumulation choices for the long-term?
This matters as, according to Sir Steve Webb, director of policy at Royal London, individuals who were members of a defined benefit pension scheme did not have to give much thought to the rate at which they built up their pension wealth.
He says: “Their own mandatory contributions, plus a substantial contribution from their employer, meant that as long as they had reasonably long service they would be comfortably off in retirement.”
He adds: “But in a world where millions of workers never had access to a DB pension, growing attention will need to be focused on helping people build up the right sort of defined contribution pot.”
Ricky Chan, chartered financial planner and director at IFS Wealth, says given that self-employed people need to pick their own funds when choosing a pension, using a simple, low-cost multi-asset global tracker fund or insurance company’s lifestyling fund should suffice.
He adds: “When values become more significant, then this should warrant using additional funds and/or a more bespoke portfolio of funds.”
Weighing the choices
Commentators stress that making the wrong accumulation choices can have a substantial long-term impact.
Mr Chan says: “[This is] Potentially very significant given the typical investment time horizons of over 40 years, so a small mistake at the start of the journey could be compounded to become a disastrous error if it’s not corrected early.”
Full article link: https://www.ftadviser.com/pensions/2019/07/04/how-to-make-the-right-choices-in-accumulation/
