From the time we get our very first job till the time we retire, it seems like we spend our whole working lives being told again and again how important our pensions are. And for good reasons really because saving up for a pension is important.
After all, we will be living on the money we save up, won’t we? They’ll be other income as well but your pension makes a huge difference but just because it is now more a less the traditional way to save up for your future does that mean it’s the best way to do it?
Pension alternatives are becoming more common these days but still I’ am willing to bet many people likely won’t be able to name many alternatives. For many people a works pension will be the only option they really know about and they might not see a reason to look for an alternative.
But traditional pensions might not always be the best method for saving for your retirement. Pension legislation can change without much warning and many people are living and working for longer so the traditional pension might seem a little outdated these days.
But the question remains what alternatives to a traditional pension do you have? Well let’s look at some of them in more detail, shall we?
Investment funds and trusts are a great way for people to pool their money together to invest in numerous different businesses and groups. By using an investment fund or trust you can increase your odds of making greater growth and more money.
Shares and stocks are the most common type of investment funds when it comes to saving for your retirement although it is far from your only option. Investing is complicated though and there are many ways you can approach it, it does have the potential for great returns and could certainly be a viable option when it comes to saving for your retirement.
As an alternative to a traditional pension investing is a more risky venture but with that risk comes the potential for much greater reward. If you make the right investments or are just lucky you could end up making a lot of money but you could always lose out as well as there are no guarantees when it comes to investing.
An ISA is a popular pension alternative but they can be a little complex, ISAs come in many different forms so let’s take a closer look at how they work. An ISA is a tax-free way to save up money although there are set limitations on how much you can put into an ISA each year.
This is currently set to £20,000 but it can change and depending on the type of ISA you get you will have different limitations. With a fixed rate ISA you will not be able to withdraw any money for a pre-arranged amount of time. But with an easy access ISA, you will be able to withdraw any money whenever you need to.
While these are two of the more common types of ISA they are not the only option you have. Investment ISAs combined many of the advantages of investing and as such you could easily make more money but they carry the same risks as well. Before getting an ISA think carefully about which type is best for you and consider all the providers you could go to as well.
A lifetime ISA or LISA as they are commonly referred to are a more long-term type of ISA which is becoming a popular alternative to a traditional pension. With a LISA you can get a 25% bonus to your total yearly savings, although the maximum you can add per year is £4000.
However, even with this limit, you could still save up a significant amount and when you add the 25% bonus it makes it a very tempting alternative to a pension. With a government contribution like that it’s easy to see why people are using LISAs to save up for their retirement.
There are some strict guidelines for using a LISA though, you can’t take money out until you are 60 if you do then you will need to pay a 25% charge. You also can’t pay any more money into the LISA once you reach 50 which means the money will effectively be unobtainable (unless you want to pay the charge) for a decade.
Any more you have paid into the LISA will still accumulate interest during these 10 years though. Finally, you can only apply for a LISA when you are between the ages of 18 – 40 so getting one at the earliest possible time will increase your chances of saving up more and getting a bigger bonus.
Property might seem like an unusual alternative to a pension but it can really solve a lot of issues. If you focus on buying a property when it comes time to retire you could sell it and downsize to something smaller.
Or you could to let out and rent your property while you move to something smaller/ more affordable. Renting is a great way to get a good monthly income and selling a property could net you a large lump sum of money which will make your retirement much easier.
However, property is volatile and risky. You could end up waiting a long time to make a sale and might not make as much as you first thought. Renting a property will also make you a landlord and you will have certain responsibilities as one like dealing with maintenance costs for example.
Property will always be valuable although the exact value can vary considerably but it’s still worth thinking about as an alternative to a traditional pension.
So, that completes our look into pension alternatives for 2019. Remember whatever you decide to do think carefully about the risks involved and don’t make any rash decisions.