What You Should Know Before Joining a Personal Pension Scheme
A pension scheme is a fund you contribute to during your most productive years so that you have money to live on when you retire.
Workers in the formal sector make monthly contributions that are usually matched by their employers’ contributions on their behalf to a company staff retirement benefits scheme. A little-known fact is that you can contribute to a personal pension scheme.
Personal pension schemes are ideal for people who are self-employed, for instance business owners, artistes, artisans and people who work in the informal sector. They are also great for professionals who don’t belong to a retirement benefits scheme, like lawyers and doctors, as well as individuals whose employers do not have a pension scheme, like NGO and church workers.
The biggest advantage of a personal retirement benefits scheme is that it offers coverage for anyone who wants to save for retirement. Here are a few pointers in choosing a personal pension scheme:
- Compare products by different providers
When making any large purchase, the rule of thumb is to compare the same item by different retailers. It is even more important to do this for a personal pension scheme because this is literally going to be your livelihood when you are no longer able to work. Do extensive research about the same product offered by different providers. Get a sense of what extra benefits specific schemes offer beyond the basic ones.
- Understand your options upon retirement
Many people assume that once you retire, the pension scheme manager will send you all your money to your bank account and you decide when and how to spend it, which is not the case. There are laws that govern when and how much of your pension you can access at any given time, which are meant to ensure you and your dependents are provided for. Because there are several different options, it would be beneficial to understand what these are, so that you pick a suitable option.
- Pick a pensions package you can afford
Many individuals underestimate how much they will need when they retire, and they end up depleting their savings far sooner than anticipated. On the other hand, there are those who pick packages that are too expensive for them. Ultimately, they fall behind on their monthly contributions and may stop contributing altogether. To avoid both scenarios, seek a financial advisor who can recommend a package whose contributions are not too punishing and will still provide enough for your post-retirement life.
- Understand all the different charges
It is important to understand the fine details of your pension package, especially the various costs. Pay particular attention to the administrative charges, transfer fees, penalties – if any – for missing a contribution, and penalties for early withdrawal. Any monies deducted affect the net amount you will receive upon retirement.
- Pick a pension manager you can trust
The government offers protections for pensioners through regulation, but this should not prevent you from doing your due diligence. Ask for evidence that your prospective pension manager is fully compliant with the Retirement Benefits Schemes Act. You could also consider the firm’s previous track record, but don’t forget that past experience is not always an accurate indicator of future performance.
Personal pension schemes are necessary for a comfortable life upon retirement, particularly for individuals who are not part of any other retirement benefits scheme. If you are thinking of joining one, ensure you do your homework beforehand so that you secure your future.
Read Also: Investment Options for Your Pension Upon Retirement
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