This is a video for those of you who have money in a defined contribution pension plan, which means you will have a Personal Pension of some type where there is a pot of money which needs to be grown to produce an eventual pay-out. This video does not apply if you have a final-salary, defined benefit pension.

You will be looking to make the value of your plan as big as you can get it, because the bigger the pot the more money you will have available to you in your retirement years. There are only two ways the pot will get bigger. By adding more contributions into it. And by the amount that the plan grows due to investment returns.

Wherever your pension is invested, the funds you use, will determine the growth you get. The better the fund or investment performance, the bigger your future value. Growth matters because over time higher returns benefit from the compounding effect.

In this example from the same starting position, the extra return investor two obtains provides them with over £88,000 more by the time they get to age 65.

Your return comes from the funds or investments you use within your pension, the future return they achieve, less any costs. This produces your net return each year.

In any particular year the mix of funds or investments you use within your pension will generate a return and then the costs are taken off and this produces the net return.

Examples:

12% return 1.5% costs NET RETURN 10.5%

4% return 1.5% costs NET RETURN 2.5%

-10% return, 1.5% costs NET RETURN – 11.5%

“Net Return = Total Investment Return – Costs”

Costs include plan/product charges, fund manager fees, adviser fees.

The net return year after year compounds to produce the eventual return, which will be the amount you get to use in your later years. The higher you can make this return, the more you will get and the higher return each year compounds, so it has a disproportionate effect. So the trick is to put all your pension money into the highest growth investments right? Wrong! Nobody knows what is going to produce the highest return in the future. Plus, the potentially higher growth investments are normally more risky and they could seriously go wrong and fall in value.You can play it safe and use low risk or no risk investments, so the pot value doesn’t fall. But then you will probably get very low growth.

Your task should you choose to accept it, is to find a way to optimise the growth on your pension fund, because better growth directly translates into improving YOUR future retirement income.

This better growth, if it can be obtained (big if), has to be done with great respect for the risk position.

If you can improve your net return in the future by finding better ways to allocate and manage the money in your fund, this is a free hit because there is never any extra cost to getting better net returns.

It is always worth looking at ways to improve your investment position within a pension fund, to try and improve future returns, provided it is done in a risk appropriate fashion.

Some people seem to think of their pension as something they shouldn’t really bother with, what will be, will be and don’t view it as an investment pot.

It is an investment, an investment which will directly affect future amounts for that person in retirement. How do you go about trying to ensure you optimise your future returns? Seek out the best investment strategy for your risk position and circumstances. Be conscious of costs, don’t overpay. Review regularly and, when appropriate, make changes to the investment mix.

Use the best pension advisers to help you. It really does pay, often in an exceptional way, to work on your pension fund investing to strive for the very best returns – the optimal returns - for your circumstances, wherever you are today, however much you have in your pensions. We have the expertise to help you in your quest.