Whether you choose a mixture of pensions or investments, ensuring you have enough money for your retirement requires good planning – and it pays to start early

Putting away some money each month into a tax-efficient wrapper such as a self-invested personal pension (Sipp) or an Isa is a good way to build up a sizeable pot to use in later life. Once you are retired, you may choose to keep your money invested until you need it, giving it further time to grow.

A diversified portfolio of different types of investments is a good start to retirement savings. It is possible to put together a portfolio like this yourself if you are skilled at researching different types of shares and other assets. If you’re less confident in conducting your own research, you could consider multi-asset products, which are designed to ensure you have a portfolio of different shares, bonds and other assets all managed within the same fund.

You could also consider investment trusts, which may provide a diversified portfolio managed by a skilled fund expert and which can be traded on the stock exchange. BMO offers a wide range of trusts for investors, so even if you only have a small amount to invest, you can access professionally-run shares across the global market.

Even if you only have a small amount to invest, you can access professionally-run shares across the global market

You can hold investment trusts, multi-asset funds and many other types of investment in either an Isa or a Sipp, and many people rely on a mix of both to fund retirement.



With all of these options, the value of your investment can rise and fall and you may get back less money than you originally invested.

The power of regular income

One important thing to consider when investing for your retirement is the value of income. Both shares and bonds (government or corporate debt) can pay a regular income to investors, which can further boost your retirement pot if you choose to reinvest the money.

In later life, if you choose investments that produce an income, you can also take this income to live on and leave the original investments untouched to grow further. There are specific types of fund that focus on income-producing assets, while investment trusts also pay regular dividends. For example, the BMO Capital and Income Investment Trust has grown its dividends ‘‘significantly faster than both inflation and dividends from the FTSE All-Share Index’’, says Julian Cane, BMO fund manager.

How will you take your pension?

New rules surrounding how people take their pensions mean that investing for retirement is more complicated but also more flexible. Retirees no longer have to buy an annuity with their retirement savings. An annuity gives a guaranteed lifetime income but rates can be very low, depending on health and circumstances.

While an annuity is still a choice, the new pension rules allow you to leave money in your pension pot to pass on to dependents at advantageous tax rates, while you are also allowed to take 25pc of your pension pot as a tax-free lump sum.

New rules surrounding how people take their pensions mean that investing for retirement is more complicated but also more flexible

Once you start to use your pension it is placed into a drawdown fund, and you can choose to take money from it whenever you wish and pass on anything that is left to dependents.

Many people use a mixture of pensions, Isas and other investments to fund their retirement, and how you use investments will depend on your circumstances, including the tax rates you are paying at the time. Cash taken from a pension – with the exception of the 25pc lump sum – is taxed at your marginal rate, which is the highest tax rate you are paying. Because you have already paid tax on Isa investments you do not pay any more when you take the money out.

A financial adviser will be able to help you decide the best retirement investment strategy for you, as well as how to best structure retirement spending in a tax-efficient manner for you and your dependents.

These tax details are subject to change and tax treatment depends upon your individual circumstances.

BMO Asset Management Limited is authorised and regulated by the Financial Conduct Authority and is a member of BMO Global Asset Management (EMEA) of which the ultimate parent company is the Bank of Montreal. Full terms and conditions and the relevant Key Information Documents (“KID”) can be found at bmoinvestments.co.uk