How to review and manage your pension

Unless you are lucky enough to be in a final salary pension scheme, you will have to decide where you want to invest your money. Unlike a savings account, your money will be invested in the stockmarket and you will be given a range of collective investment funds to choose from.

Here your money is pooled with that of other investors and invested on your behalf by an expert fund manager, according to the objective and risk profile of the fund.

Some funds will cover a broad spread of assets - including cash, bonds and stocks and shares – while others hone in on specific countries or regions such as the UK, Europe or emerging markets. Some focus on smaller companies and the most niche on specific industries such as pharmaceuticals, natural resources or infrastructure.

Find the best pension funds available on your selected pension platform

Which funds should I choose?

While some more basic pensions only have up to 20 funds to choose from, more comprehensive schemes could have several hundred, or if you are invested in a Sipp, you could have access to the entire investment universe.

If you are in a workplace scheme, you may be lucky enough to get access to free advice from an independent financial adviser who will be able to recommend appropriate funds based on a thorough assessment of your personal circumstances and attitude to risk. Or you can pay for this service yourself, however with research from suggesting the average fee for advising on a £200 a month pension contribution is as much as £500 this won't be an option for all.

How much should you pay for financial advice?

If you are going it alone - as most of us do - the choices can be baffling, particularly if this is the first time you have invested. But, it doesn't have to be difficult. By breaking down the process into manageable chunks - taking into account your age and the level of risk you are prepared to take – you can quickly narrow down your options and start making sensible and well informed decisions. Find out how with our guide.

How to choose your pension funds

Default dangers

Of course pension providers are well aware of just how confusing it can be to select your own funds and for this reason they offer default funds - the easy option for those that don't want to make investment decisions. This is also where your money will be put if you don't tell your pension provider what to do with your contributions.

These default funds aim to grow your capital during your working years, then as you draw closer to retirement (anywhere between seven and 15 years) the focus shifts towards protecting your capital. Essentially this involves gradually moving money out of equities (which can suffer serious and untimely drops) and into safer asset classes such as cash and bonds, in a process known as de-risking. According to the National Association of Pension Funds, 84% of savers are invested in their pension's default fund.

Managing your pension in this way can make sense if you plan to use your whole fund to buy an annuity as soon as you retire, or if you plan to cash it in. However if you want to keep some or all of your money invested into retirement it may not make sense and see you miss out on vital growth.

Are you invested in a default pension fund?

The hard work is arguably done once you have chosen your desired pension funds. But unfortunately you can't put your feet up and forget about your pension altogether. Every once in a while you need to check in and see how it's doing.

This means checking out how your various funds are performing – comparing them against their peer group – and ensuring that your portfolio is still in line with your attitude to risk. Gradually as you get older you may want to start de-risking as your focus shifts from growing your fund to protecting it.

Most experts agree that this should be once a year, although if you're approaching retirement, it makes sense to increase this to every six months.

How to review your pension

Topping up your pension

As you get older you will hopefully be earning more and having fewer drains on your income. This, along with the stark reality of an ever-closer retirement, may mean you want to start paying more in to your pension. Alternatively your pension review may make you realise you are not going to have as much as you expected to live off in retirement.

Topping up your pension is easy with a workplace scheme, but if you are a keen investor and want to take more control over your retirement savings it may make sense to explore the alternative options.

Find out the best ways to top up with your retirement savings with our guide

What's the best way to top up my pension?

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