by Dr. Ros Altmann

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1. Know the difference between a pension fund and a pension! When you are putting money aside for retirement, you will be saving in a 'pension fund'. This is not a 'pension'. Your money will be invested over the years, but then you have to decide how to get an income out of that fund - which is a completely separate decision.
2. Understand the risks involved in building up a pension fund. The aim of a pension fund is to build up money for later life, that you can then live on to give you a better retirement. But unless you have a final salary pension, you do not know how much pension income you will get from your savings. You could even end up with less money than you put in, if things go wrong.
3. Recognise that stock market returns are not reliable. Pensions policy in the UK has been based, for decades, on the idea that investing in the stock market will always give you high returns. But it hasn't worked. Over the last 10 years, £10,000 invested in the stock market would now be worth just £8,500, whereas £10,000 invested in government bonds would have grown to £17,000.
4. Think about whether you want to protect your pension fund. When you buy a house, you automatically think of insuring it against fire, flood or theft, but when you put money into a pension, most people don't even consider insuring their fund against substantial losses from stock market falls. This is because everyone was told they would always be better off over the long term by investing in equities, so they had the impression that strong stock market returns were guaranteed. If that is not true, then maybe you should consider some insurance.
5. Make sure you ask the right questions before you convert your pension fund into a pension. Having saved hard for many years, you don't want to then make the wrong decision about how to take your pension. There are lots of options and there is no one right product that suits everyone, so you need to think carefully about what's best for you.
6. Don't just accept the annuity (pension income) that your pension company offers you when you come up to retirement. It may not be right for you. Think about whether you might need something different. If you are in poor health, you could get much better rates elsewhere, if you have a partner you may need to cover them, you may want to leave the money invested in the hope it will grow over time, and you may want to insure those investments against future losses.
7. Read the MetLife report that can be found at www.metlife.co.uk/rp.
8. Make sure you get financial advice as these decisions are not easy.