Starting anything new can be challenging when it’s easier stay as you are.

However, inertia can be costly when it comes to pensions because the earlier you start the more you money you make from compounding returns.

But the process of starting a pension can feel like a mysterious event for a lot of people so this article aims to lift the lid by outlining the simple steps involved.


Step 1: Understand Exactly How a Pension Works For You

The type of pension products available to you, and your specific funding options, depend on whether you’re a company director, self employed, sole trader or PAYE employee.

Step 2: Meet With an Advisor

The next step is to book a discovery meeting with a financial advisor to get clarity around your future lifestyle goals.

This meeting is important because you’ll be deciding if this advisor is right for you, someone you can trust and work with long-term.

This shouldn’t be underestimated because they will have a significant influence on how well you do since you will be basing some very important decisions on the advice you get from them.

You can click here if you would like to talk to me.

Step 3: Complete a Fact-Finding Process

This is the dreary, but necessary, part of the whole exercise because it’s where your unique financial planning needs emerge.

Investing the time in this process is worthwhile because it means your plan can be as closely tailored to your needs as possible.

Step 4: Assess Your Tolerance For Risk

Starting a pension fund is not the same as opening a bank account. 

Pension funds invest in a myriad of assets like stocks, bonds, property, commodities, currencies and lots of other things.

They’re also covered by a multitude of complicated, and ever-changing, rules.

As such, there are elements of both investment and legislative risk involved.

This, therefore, requires a greater degree of due diligence to ensure that you act according to your profile.

A risk profile questionnaire has 15 to 20 multiple-choice questions which will assign you a number between 1 and 7.

This is based on the European Securities and Markets Authority (ESMA) rating system with 1 representing low-risk tolerance and 7 representing high tolerance.

Risk and return are intrinsically linked so part of the discussion will involve the risks you deem acceptable to reach your goals.


Step 5: Select an Appropriate Investment Strategy

The way you invest your money will be influenced through a combination of your risk profile and personal preferences.

Some people like to be 100% involved in every aspect of their pension, whilst others couldn’t care less, so you can be as hands-on or hands-off as you want to be. 

In general, you can choose between the following 3 options;

  1. Passive investing: Most people are happy enough to invest in low cost, index-tracking funds or ETF’s. This is the most popular way to participate in the markets since you just select a fund or range of funds to track the ups and downs of various indices.
  1. Active investing: This option uses fund managers to beat the market and tends to cost a bit more since you’re utilising the research and management expertise of a professional money manager to make investment decisions on your behalf.
  1. Self-directed investing: This is the most suitable option for those who have the time, interest and insight to fully manage their own portfolio and buy and sell their own assets.

Step 6: Get Started

There’s a lot of paperwork involved in starting a pension as you would expect in a regulated industry.

That said, there are 7 universal requirements needed to set up a pension;

    1. Your drivers license or passport as proof of identification,
    2. A utility bill dated within the last 3 months as proof of address,
    3. A pay slip or social services card as proof of your PPS number,
    4. BIC & IBAN payment details,
    5. The current value of any pre-existing pension benefits,
    6. Confirmation of investment choice and start date,
    7. Signatures on all the application forms, suitability statements and compliance documents that we provide.

…and there an additional 5 requirements for executive schemes and director pensions;

    1. Confirmation of your employment start date,
    2. Confirmation of your shareholding as a director (if applicable),
    3. Company registration number & VAT number,
    4. Letter of exchange signed by both employee and employer (we provide this),
    5. Assignment of your scheme trustees (The trustees take care of all the legal and reporting requirements).


Step 7: Review Your Plan Every Year

Pension plans are a long term financial commitment so they are somewhat different to other consumer products.

And since this is a process that typically happens over decades there are many events that will influence the amount of money you accumulate by the time you retire.

Low product charges and good decision making are the two factors that will stand to you over time.

The ability to make good financial decisions is the most valuable skill you can have so this is why your choice of advisor is so critical.

You can’t manage what you don’t measure so keeping track of your progress is vital to keep you on course.


Step 8: Enjoy The Retirement Lifestyle You’ve Created

Claiming a pension isn’t a particularly glamorous event.

It’s usually just a meeting attended by you, your spouse/partner and your advisor.

But this is the end game and 100% of your options will be determined by the size of the fund you have.

Therefore, your sole objective with a pension is to arrive at this meeting in the best shape possible.

That’s why we design portfolios based on your appetite for risk, your goals and the amount of time you have until you get there.


Ok, So Where Do I Go From Here?

Your retirement starts with a plan and that plan starts with a single step.