How do you see your retired life? A comfortable and relaxed lifestyle! Days out with the grandchildren! Don't be forced into compromising your lifestyle because of a low income when you retire. Remember that any money you invest will be tied up until you take your retirement benefits. The value of your pension fund may fall or rise. Unlike most other forms of investment, pension investment is normally tax-privileged in high-tax countries. This means that the contrast between onshore and offshore returns may not be as marked as in the case of other types of investment activity.
For residents of high-tax countries, it may be prudent to build their pension provision within the tax-net of their home jurisdiction. Let us examine various pertinent issues that have to be borne in mind before considering pension investment options. Look for high yielding investment options that can secure your retirement years.
Pension investment principles
- Get the facts: It is essential to acquire knowledge and information about saving and investing. The first step towards choosing an investment product is to gather as much information as you can by undertaking careful research.
- How you save is just as important as how much you save. Inflation and the type of investment play important roles in calculating the amount that you would have saved at retirement. Financial security and knowledge go hand in hand.
- Know your retirement needs: Retirement is expensive. Experts estimate that you might need about 70 % or more of your pre-retirement income to maintain your current standard of living.
- Learn about your employer's pension or profit sharing plan: If your employer offers a plan, check to see how it can benefit you. Most employers will provide an individual benefit statement. Before you take a new position, find out what will happen to your accrued pension.
- Devise a plan and stick to it: Financial security starts when you take personal responsibility for your financial well-being. If you pay attention to your money and take charge, you are more likely to gain financial security. The sooner you begin saving, the more time your money gets to grow.
It is necessary to revise your retirement goals. Sometimes major illness or life events may require a revision of retirement investment. Your income may not be the same as when you had started out your pension investment scheme. Bankruptcy or children's education may have put your finances in a tizzy. On the brighter side, you may have some additional income from your spouse's job and may want to increase your pension investment. Consider the amount of social security that you can expect on your retirement. Then you can take a close look at your investment portfolio and plan out a judicious mix of investments for growth and income. Examine the life and health insurance coverage that you have.
Occupational pensions are pension schemes offered by employers. Salary related pension schemes are based on the salary that you will receive when you retire. It is also dependent on the number of years that you have been member of the pension scheme. This scheme is therefore known as the final salary pension scheme. The other type of pension scheme offered by employers is the money purchase scheme. This kind of pension scheme depends on the employer's and employee's contribution and how well the pension fund performs. The annuity rates at the time of retirement also decide your final pension amount.
types of Pension Investments
Governments in high-tax countries offer various incentives to encourage saving towards retirement. Many a time contributions into pension plans are tax-free. Sometimes the investment gains from pension funds are wholly or partly tax-free. The proceeds of pension plans are sometimes wholly or partly tax-free. All these tax breaks are not available simultaneously.
Multi Manager for Income: An OEIC (open ended investment companies) is a type of collective pension investment scheme. That means your money is pooled with other investors' money and will be a high yield investment. You can be confident of giving your money the best treatment without being an expert yourself. One of the aims of collective investments is to give you access to a much wider range of stocks and shares than you would be able to get if you invested by yourself. Because all your eggs aren't in one basket, collective investments can be less risky than shares in individual companies. A unit trust is another type of collective investment but units are issued instead of shares. This pension investment is ideal if you are looking to boost the monthly income you get from your savings. Collective investments can give high yields if you are seeking to invest for 5 years and more. But if you don't want to risk any reduction in capital, this may not be the investment scheme for you.
Defined Benefit Pension (DB) Plan:
This is a registered plan that promises to pay you a specific income when you retire. A formula sets the amount, based on how much money you made at your job and the number of years you worked. This plan is used to finance government programs and expenses.
Defined Contribution (DC) Plan: This is a registered plan that tells you how much your company will save for you in a personal account. The amount is based on how much you make every year. The best deal is where you can contribute too and your employer matches your contribution. This type of plan is also known as a money purchase plan.
Group Registered Retirement Savings Plan (RRSP): This works like a private RRSP, except you and/or your employer put money into the account in your name. The money usually comes right off your paycheck. Before investing, it is vital to look into the investor's personality profile. While looking at the profile of the investor, it is important to consider risk, return, time frame and liquidity.
In many high-tax countries, much of the pensions investment is partly or entirely insurance-based. This is due to the need to incorporate disability and death benefits into pension schemes and partly on account of the favorable taxation environment of life assurance companies, in which many pension schemes operate. Offshore pensions provision is not much affected by tax considerations. There are many offshore insurance companies offering such schemes and they are a viable alternative to bring about high yield from investment.
Many people making offshore investments are doing so without having made final decisions about where they will reside. But investments intended to provide pension income need to take into account the choice of jurisdiction for eventual retirement. The choice of retirement jurisdiction may be influenced by social, climatic and political factors. The investment jurisdiction may be influenced by the international tax regime within which it operates. Offshore pensions investments will usually be made using one of the three types of investment routes described in the earlier sections (Private Banking, Offshore Equity Investment and Offshore Investment Funds). Life assurance companies offering pensions investments offshore are generally located in jurisdictions with good mutual fund legislation.