Investing in Pension: Important Steps Worth Thinking Over Before Taking the Plunge

Pension, being a retirement scheme is an idea that most young people do not embrace because they think retirement is very far away. What they fail to understand is that retirement years are always approaching with each passing day. If however you ask those who have already retired and are on pension, they will always advice young people to start saving early. Pension savings ensure that an individual still has an income after they have retired.

Credible scheme


Do your own research!

The first step to making a fortune from pension cash is to join a credible pension scheme. This is a decision one makes the moment they start earning a salary and it is crucial because different schemes have different implications and benefits. It advisable to conduct extensive research and with the internet one can get all the information they need without having to pay for consultation. One of the things to look out for is the cost implications and hidden charges. Most consultants will not reveal everything to you but you can always find extra information by talking to people who are already in the scheme.

One or many schemes?

After getting all the information you need decide whether you will invest in one scheme or you should go with multiple. Diversification makes it possible for an investor to survive in case one scheme fails. This also increases the limits to the benefits one is entitled to when they are over 60 years old. Some of these benefits include free or subsidized medical care, discounts at various retail stores, bus and gas stations and other similar benefits. It means the pensioner has an opportunity to save a dime which can be directed to other uses.

Tax implication

The next step is to understand the tax implications tied to the pension scheme. This information is important; it makes one aware of the amount of their pension withdrawals exempted from tax. Pension is usually considered as income and a part of it, mostly 75% is subject to taxation just like any other income the pensioner is receiving. The other important point to note in this regard is the fact that in case a pensioner dies before the age of 75, their benefits will be remitted to the beneficiaries tax free.

After 75 years however, income tax is applicable to the amount being paid out. It is important to make sure the beneficiaries are aware of the available schemes to avoid losing all the lifetime savings upon your demise. The names and contacts of the beneficiaries and next of kin should also be up to date in the scheme’s records.

Collecting the pension

Time to cash out?

Time to cash out?

Decide on the timing for collecting of the pension. This affects the amount to be received since most pension companies pay more when the pensioner withdraws their benefits at 65 years of age other than later. This is the legal retirement age, though there are people who continue to work past this age, particularly those who are self employed. It is important to understand the scheme’s policies in this issue to be able to reap maximum benefits from it.

Pension money can be invested too

Pension money can be invested just like any other income, though at old age, a person can not go for long term investments. For those people who have no other source of income apart from the pension payout, they can use this opportunity to create another stream and have something that will occupy them while they enjoy their retirement. This doesn’t have to be a very capital intensive and time consuming venture. It can be something as simple as opening up a grocery store in the neighbourhood or engaging in sustainable delivery business.