MyFamilyClub - Money Saving Made Easy

The world of pensions can be a confusing one. And trying to choose the right one from a choice of hundreds is not easy – particularly if you are not a financial whizz.

To help, here is a checklist of five things you should think about when choosing a personal pension.

1. Can you afford the pension contributions?

Some pension funds require a lump sum upfront, but most providers will expect you to make regular payments as you build up your retirement fund during the rest of your working life.

This is not a problem, unless there is a minimum requirement that you could find difficult to meet in the future.

If you are on a tight budget or have an irregular income, it is therefore a good idea to check whether you'll have to commit to regular payments or whether you can vary them.

2. What are the pension provider charges?

The fees imposed by pension providers will affect the size of your fund at retirement, so it is worth making sure that you know exactly what you will be paying.

Charges to look out for include administration fees, transfer fees, fund management fees, and missed payment penalties, while it is also important to check whether you will be penalised should you decide to retire early, for example.

There are no fee caps on most personal pensions, but stakeholder pension charges are limited to a set level by the government.

3. How will your money be invested?

While there is no doubt that charges will have an impact on the size of your eventual fund, the performance of the underlying investments will have an even bigger one.

Most investment experts advise those with a long time horizon to take more risk, while anyone approaching retirement age should probably reduce risk in case market volatility causes their fund value to fall at a point when they do not have the time to recoup the losses.

Either way, it is vital that you are comfortable with both the level of risk you are taking and the flexibility you have to reduce it should you feel the need.

4. Can you get a better pension deal elsewhere?

Before committing to a personal pension, it is sensible to compare the plans available from different providers.

To help with this, you can ask for the Key Facts document – a summary of charges and other important information – for each scheme you are considering.

5. Do you need independent financial advice?

Taking out the right personal pension could have a significant impact on the standard of living you can afford in your retirement.

It is therefore a very big decision, and one that you may feel uncomfortable taking on your own.

If this is the case, or you have complicated financial affairs that need taking into account, it may be worth using an independent financial adviser.

He or she should be able to search the market for the best deal for you.

The only downside is that you will pay either a fee or a commission for this advice.