For those who currently have a pension or are looking at setting one up, you might be asked to decide how your money will be invested during the years until your retirement.
The point of investing in a pension is to help your money grow over time.
It’s important to understand what different kinds of pension investment funds there are, as well as their pros and cons. This way, you can put your money in the best place for your needs and wants.
This blog will explore your investment options, what to consider when building up money in a pension, and which pension funds will see the best lifetime returns.
Here are 9 high-performing pension investments in March 2024:
- Property Investment
- Bonds
- ETFs (Exchange Traded Funds)
- Private Pension (SIPPs)
- Cash ISAs
- Savings Accounts
- National Savings and Investments
- Money Market Funds
- Stocks and Shares
Property Investment
Investing in Property in 2024 is likely one of the best options for any investor seeking long-term, lucrative gains.
The main high-performing property investment strategies are:
- Buy-to-Let
- Off-Plan
Buy-to-Let Property Investment
Put simply; buy-to-let investments involve buying a property to let/renting it out to a tenant.
Investors will make money from the rent paid by tenants, so when everything is running smoothly, you can expect a steady stream of long-term, reliable income, often with minimal pressure.
You can either work with an external investment company or on your own.
Working with a property investment company will probably be the best route for those seeking a relatively hassle-free experience. These companies will typically handle most of the heavy lifting with property investment, including sorting out solicitors and helping you find the best possible developments and investment areas.
Of course, you can choose to explore property investment on your own, but if you’re looking for easier access to this investment strategy, this is almost definitely something to consider.
One of the biggest benefits of investing in buy-to-let property is that it’s a great way to earn passive income.
For those looking towards building their pension pot and securing some retirement income, this will probably be music to your ears.
With property, capital appreciation is also integral to investment. Simply, this is when the value of a property increases over time.
As of March 2024, most experts have predicted that the value of UK rental properties is set to drop by as high as 10% by the end of the year.
This is no cause for alarm, however, as UK property prices are set to increase by as high as 11.7% in certain areas over the next five years. So, prices might be declining now, but value is only expected to increase in the future.
Past performance has also shown that property is at its strongest when investors pick the best areas for investment.
While London can see some strong returns, its lack of affordability and fluctuating rental returns can make residential property investment difficult for those seeking high yields and more dependability.
Other areas, like Liverpool and Manchester, can see more potential for high returns than the capital at a low cost.
With a buy-to-let property investment, whilst you can pay entirely by yourself, you don’t need the entirety of funds to cover 100% of the property to purchase. This is because you can borrow any remaining balance through a buy-to-let mortgage.
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Off-Plan Property Investment
This is most likely the most affordable method of buying rental property in the UK.
Off-plan investment involves purchasing a property that’s still in the construction stages.
Of course, investing in an unfinished asset might seem like a risky investment decision.
However, there is some specific appeal as to why pension investors should consider off-plan property investment.
Firstly, as an incentive for investors, off-plan properties are typically sold at below-market rates. If you work with a property investment company when you buy, you’ll also be rewarded with assured rental income for a good few years afterwards.
Alongside this, one of the perks of investing in properties still in the construction phase is that the value of your investment can grow before it even sees completion. Once the property is completed, it’ll also likely be a huge attraction for the rental market, with it being completely new and usually outfitted with the latest features.
Of course, the biggest downside of this is that you will have to wait until the property is fully built before you can start seeing any returns on the investment.
If you’re patient enough, though, this could be the perfect choice for those looking to maximise their earnings and save a bit of money at the same time.
Bonds
Bonds are created by companies and governments whenever they want to raise money.
If you choose to put your money into a bond, you are essentially lending money to the issuers, and they pay back the face value of the loan on a specific date, as well as periodic interest payments along the way (usually twice a year).
Bonds are typically issued at around £100 each. Investors can also buy bonds on the second-hand market, but prices are governed by the supply and demand ratio, as well as interest rates.
The market price of bonds is directly linked to interest rates – a lower rate of interest will see a lower price for bonds.
For example, if you were to purchase a bond for more than £100 and hold onto it until it reaches maturity, you could see less money than you originally invested.
Investing in bonds has a lower risk level than putting money in most other investment strategies. Government bonds (gilts) are typically thought to be effectively risk-free, but as interest rates rise in the UK, as well as government borrowing costs, investing in gilts in 2024 could come with more risk than in previous years.
Investing into a bond isn’t as risky as putting your money into property or equities. The level of risk with a corporate bond depends on the company that you’re investing in. Companies with low credit ratings are often considered to be riskier comparatively, but they will usually have a higher rate of interest to attract investors.
If the company were to collapse, bondholders would be paid before shareholders (only if the funds are still available), meaning that any returns from bonds are not guaranteed.
Investors who invest in bonds are also essentially placing their money into a pool managed by a fund manager — meaning that there can be less freedom in choosing which assets to invest in.
For those wishing to make their investments, it might be best to consider an investment strategy that offers greater individual control.
ETFs (Exchange Traded Funds)
ETFs (Exchange-Traded Funds) are another type of pooled investment and work in a similar to mutual funds.
Like mutual funds, ETFs can be spread across a range of investments, like stocks and bonds.
A great way to ensure diversification, this could be a great strategy for investors seeking decent returns and lower levels of risk.
Private Pension (SIPPs)
Unlike a workplace pension, which is set up by an employer (with no input by you), another option for pension investment is setting up funds yourself, providing you with the most freedom in terms of where your money goes.
While state pensions see pension contributions distributed as a regular weekly income into your bank account, with a Private Pension, you can decide whether your pension pot is used to buy an income or if it’s left invested to withdraw whenever it’s needed.
Private pension plans will see you working alongside a pension provider to decide how to invest your money over time. Providers will usually offer a range of investments to choose from when deciding where to put your money based on your situation and risk tolerance.
If you want to be more hands-on, though, you could set up your pension investment plan by creating a portfolio of your design. Be warned; however, this is best suited for those with a higher risk tolerance who don’t mind investing with a strategy that could see higher returns but with a higher potential for losses.
SIPPS
SIPPs (Self-Invested Personal Pensions) are the most common type of private pension. With a SIPP, you can specifically detail where to invest your money whilst also bringing together smaller pension pots from separate employers.
A decent low-risk strategy for those looking to build and manage their futures without having an external company calling the shots on how their savings are invested, SIPPs give you the freedom to invest directly in things like stocks and shares rather than relying on funds.
Mostly popular with those who are self-employed, as it allows them to build their own pension DIY-style, with an unmatched level of independent control and freedom, SIPPs are one of the strongest low-risk investments with one eye toward the future.
Cash/Stocks and Shares ISA’s
A Cash ISA is a kind of savings account that provides tax-free interest.
This means that investors can retain all the interest they earn so long as they stick to the terms and conditions of the account.
The amount you can put into an ISA is capped at £20,000 each tax year, and you can only open one Cash ISA a year, but it is possible to transfer to another ISA with another provider during the tax year.
A Stocks and Shares ISA is another kind of savings account that allows you to invest in various funds, like ETFs and Index Funds.
There is a strong potential for long-term returns, depending upon the performance of the chosen funds. When things are going well, investors are likely to see greater rates than they would see with a standard Cash ISA.
However, investing in a Stocks and Shares ISA will see a higher level of risk.
Like all investments, the value of your investment may skyrocket, but — depending upon external factors, like rising interest rates — it could come tumbling down just as fast.
For those looking to move their ISA to a higher-interest asset, transferring – rather than reinvesting – is the best way to approach it. Doing this will ensure that you’re not using up all or a significant amount of your tax-free allowance for the tax year.
Savings Accounts
Unlike most other investment strategies, because you’re essentially stockpiling your income, a savings account will not fluctuate in value due to external factors. Most financial advisers would agree that this makes it one of the safest and low-risk investments in 2024.
When you keep your money in a savings account, the value will not decrease – unlike most other investments, in which value fluctuates almost constantly.
You will also be able to make withdrawals whenever you need them, rather than having to wait for conversions as you would with stocks or bonds.
Any money kept in a retirement savings account will not see its actual value change, but rising rates of inflation mean that it could lose its spending power over long periods.
It could be said that the longer you keep your money squirrelled away, you could be stopping yourself from seeing huge returns from investment.
Saving is a top choice for those seeking low-risk ventures, but not all investment strategies are massively high-risk endeavours.
National Savings and Investments
National Savings and Investment (NS&I) is a government bank offering savings and investment products to the public.
Because investors lend directly to the government, 100% of the savings are protected.
Unlike most typical banks, this scheme is for savings only, meaning you won’t be able to lend money or take out a mortgage using it.
The service changes its products often, but you can expect to see investment options such as these:
- Income Bonds
- Premium Bonds
- Cash ISAs
- Junior ISAs
- Guaranteed Equity Bonds
- Pension Savings accounts
With this strategy, investors could see significant interest on their returns or tax-free prizes – depending on where they invest.
However, some assets can deal penalties to those that cash out early, meaning that you could see less money than you originally invested.
As with standard saving accounts, the money put in will not lose value, and you’re guaranteed to get back all your money (barring any penalties). However, similar to savings, if inflation is high, your money might not hold its value in real terms, and its spending power may have declined. Read more with the RCCIL guide on risks with our property investment risks appraisal.
Money Market Funds
Money Market Funds are a type of mutual fund that generally come with a lower level of risk.
By investing in high-quality corporate/government debt (like with corporate bonds/gilts), investors can see relatively safe, assured returns.
With a lower level of risk, there is also less chance of investors experiencing the usual market changes seen with other investment options.
Money Market Funds also offer investors liquid income, meaning that they can take out money at any given time without seeing any penalties, with the funds earned usually available the next business day.
However, this is another investment strategy that does not perform well alongside high interest rates. This could bring some risks to investors over time, with investors potentially losing some of the capital value of their income.
Money Market Fund investors are also charged an annual management fee of around 0.75%, which can reduce any returns in the long term.
Stocks and Shares
Shares represent a fraction of ownership in a company. When an investor purchases a share from the stock exchange, they are essentially purchasing a small stake in that company and become a joint stakeholder.
The aim of stock investment is for shares to grow in value over time. For those who get involved, there is an opportunity to see regular income and solid capital growth – but neither is guaranteed, and the amount of risk is much higher.
Prices can fluctuate suddenly and be much more difficult to anticipate, making this strategy much riskier for investors than others.
Similar to bonds/gilts, the level of risk with stocks and shares will depend on the company that you want to invest in.
For example, investing in the latest up-and-coming start-up will be a massive risk in comparison to a household name. Whilst there could be the potential for higher returns if the company goes bust, then the value of your investment will be decimated.
Depending on your financial situation, you could ride out these periods to generate long-term returns.
But, unlike property, it’s very tricky to predict the fluctuation of the stock market – meaning that you could be waiting many years before you see any positive impact on your investment.
While its ability to generate massive returns on investment is undeniable, stocks and shares may not be the best long-term investment to hinge the majority of your finances on.
What is the Best Pension Investment for 2024?
Get Started with RCCIL
If you’re ready to get started with property investment, then look no further – RCCIL is here to help you.
We have the knowledge and resources needed to provide the best financial advice to help you make a lucrative buy-to-let investment in the UK.
Chat with one of our agents today, and we’ll help you find your perfect investment opportunity.
Why not read our specialist property guides from buy-to-let property in Chelsea to investment property in Fulham?