What happens to your pension money?
CAPTION: What exactly goes into your pension? And what happens to your money once it’s invested with Royal London? Hear from the people who manage your pot…
LORNA BLYTH: My name is Lorna Blyth and I’m Investment Strategy Manager at Royal London.
TREVOR GREETHAM: I’m Trevor Greetham and I’m Head of Multi Asset Investments at Royal London.
LORNA: A pension is really a kind of savings plan that you pay into every month which is designed to help you save for your retirement, so unless you plan on working all your life, then a pension is really important and can make sure you can enjoy a decent standard of living when you retire.
If we think of a pension as a pot – you put money into [it] from your salary, the government also puts in some money via tax relief into that pot, and then on top of that your employer will make a contribution too, and Royal London takes that pot and invests it to make it grow.
The government has set out rules which means that all employers must set up a workplace pension for their employees. Your employer will automatically deduct your contributions off your salary, it’ll get paid automatically into the workplace pension, and you don’t have to make any decisions about investment because all of that is done for you. If you’re self-employed you can set up a personal pension plan.
TREVOR: When you put money into a pension on a monthly basis, Royal London will look after it for you and invest it in a range of different investments, such as company shares, government bonds – that means loans to the government or loans to companies – or perhaps even in buildings. We own buildings where we collect the rents and the rents go back into your pension pot. The reason why we invest the money in a wide range of different types is at a particular point in time, when some aren’t doing very well, others may well be doing better and that is very useful to have the spread of investments because that gives you a bit of a smoother journey.
When you’re investing for the long run, you need to take a degree of risk to make money. If you play it really safe and put all the money in cash, the problem is in 10 or 20 years’ time you won’t be able to buy very much with that cash. Just think about how the prices of things at the supermarkets go up every year. In order to grow your investments so you can buy more things with the money when you need to, you need investments that tend to beat inflation over the long run. The mix of investments that you’d have in your pension pot will be determined by your stage of life. If you’re younger, you’re setting out on your journey, maybe in your 20s you might have 30 years or more to go before you retire, you can afford to take more risk and you want more growth, and so for younger investors typically portfolios are tilted more towards things like shares and property. As people get older we’ll generally tilt the investments more towards the safer sorts of things like government bonds and corporate bonds.
LORNA: From the age of 55 you can access your pension and you’ve got a number of options. So, for example, you might want to take the whole lot out as cash, you could use it to buy a fixed income for life, or you could keep it invested and that will give it a chance to grow and allow you to take out income as and when you need it. As you approach age 55 we’ll tell you what your options are so that you can have a think about what’s best for you.
CAPTION: If you’re unsure about pension planning, an impartial financial adviser can provide guidance based on your needs.
More on how we manage your money
What happens to your pension money?
Lorna Blyth and Trevor Greetham tell you how we invest your retirement savings to help them grow.
Getting the right mix for your pension
Lorna Blyth and Trevor Greetham tell you why a mix of investments is important to help grow your pot and reduce risk.
How we make investment decisions
In order to grow your pot, there are a number of decisions we have to make when it comes to investing your money.
Maximising returns and reducing your risk
Lorna Blyth and Trevor Greetham describe how we balance managing risk with growing your returns over time.
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