Pay less, retire sooner — better pension management


Many people dream of the day when they’ll have a large enough pension pot to comfortably retire.

And most of us know to do this means putting away a significant amount of money during our working lives.

Importantly though, small changes can make a huge difference. A factor that is especially important when you consider, for example, how much you pay for the management of your pension fund. Could you see the returns you want sooner, and for a lower cost?

Chances are you can. Let’s take a look.


Twins Alan and Barry, aged 40, both have average-sized pension funds already, and both are hoping to retire on an income in today’s money of £30,000 a year.

Taking Alan first, and by making various assumptions about his current pension fund, investment returns and entitlement to a state pension, Alan would have to save £960 a month to achieve his goal at the age of 65.

Amazingly, however, it could cost Barry £734 a month to retire five years earlier at the age of 60. That’s £226 a month less than Alan for the same £30,000 a year.

This isn’t a printing error; it’s a good example of the power of compound returns.

We’ve assumed Alan will receive a 5% a year return on his pension fund, as well as anything else earmarked for retirement, and for Barry, we’re using a 7% return.

This is a simplified example but what it does show is how important it is to make the most of your retirement savings, both in terms of what is accumulated to date, and anything you save in the future.

And of course, a key factor here is the amount it costs to manage the fund. Are you aware of the charges on your existing plans? Could you achieve your desired return at a lower cost? Naturally, a regular review of your planning should identify where changes would make a difference.


Recent changes to pensions legislation, including improvements to flexibility at retirement and generational tax planning aspects, means they’re an attractive method of future financial planning.

Having a properly constructed plan in place to make sure your money is being well looked after, including areas such as charges and performance, can reap significant benefits. The ability to add an extra percentage or two in returns each year could mean having the chance to retire several years early.

All too often we come across very poorly performing “actively managed” funds with associated high costs. On the other hand, by choosing index tracking and passively managed funds you can potentially improve performance, reduce risk, and reduce costs; and with time, not timing, important in the world’s stock markets, you can start taking advantage of the compound effect of returns sooner rather than later.

Other important considerations include the level of risk you’re prepared to take and how you’ll diversify your portfolio across appropriate asset classes (equities, fixed interest, commercial property and cash). From there, you should also assess your investments’ performance against your original requirements regularly, normally annually, and rebalance the fund at these reviews.

This means you’ll stay on track, so you’re in a better position now to save less and retire earlier.

Philip Gauld is a Financial Planning Manager with Acumen Financial Planning, based at their office in Elgin.

By Philip Gauld
Published in The Business, The Press & Journal on 15 July 2019

Category: Retirement, Pensions