Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
5 Best Pension Alternatives to Save For The Future in 2024
Ruby Layram
2nd Sep 2024
In the UK, pension schemes are not the only way that you can save for a comfortable retirement. In fact, diversifying with pension alternatives can be a great way to grow your wealth and take advantage of other investments that could provide lucrative returns.
In this guide, I will reveal 5 pension alternatives that you could consider in 2024. I will discuss a mix of investment ideas from those that hedge against inflation to assets that have a history of high returns.
- Individual Savings Accounts (ISAs)
- Gold
- Real Estate Investment Trust
- Enterprise Investment Scheme (EIS)
- Bonds
Why invest in a pension alternative?
So, why should you consider investing in more than just a basic workplace or personal pension?
There are a number of reasons why someone may invest in pension alternatives.
Firstly, not everyone in the UK is eligible for a pension. You will need to pay a minimum of 10 years of National Insurance contributions to qualify for a state pension. And to qualify for a workplace pension, you have to be employed.
So for adults who don’t work, a regular pension may be off the cards!
Secondly, locking your money up in a pension scheme means that you cannot access it until retirement age. That is currently 66 years old for both men and women. This might be okay for some but, what if you want to retire early or use some of your cash for a big expense before you hit 66?
Finally, investing in a pension alternative is an excellent way to diversify your pot and take advantage of different corners of the market.
By spreading your investments across various assets, you minimize the risk of putting your entire future in the hands of one pension pot!
Now that you understand why you might want to consider investing elsewhere, let’s take a look at 5 pension alternatives to think about.
1. Individual savings accounts (ISAs)
I’m going to start with my top choice, ISAs.
An ISA, or Individual Savings Account, is a personal account for saving and investing, but with a great twist—it’s tax-free!
Essentially, it’s a type of investing account offered in the UK where you can stash your savings or investments without having to pay tax on any interest, dividends, or capital gains you earn.
There are a few different types of ISAs including the Cash ISA for straightforward savings and the Stocks and Shares ISA for those looking to invest in the stock market.
It’s a fantastic way to keep your money working for you while keeping the taxman at bay!
If you’ve still got a while before you want to tap into your retirement savings, a stocks and shares ISA or Lifetime ISA can be an excellent way to grow your wealth.
On the other hand, if retirement is just around the corner, you might want to consider a flexible Cash ISA that offers higher rates than a basic savings account but comes with the flexibility to take out cash whenever you like.
2. Gold
If you’re on the hunt for a relatively stable pension alternative, Gold is certainly one to think about!
Gold has a remarkable track record of being a stable asset. When the stock market gets a bit wobbly, gold often shines, offering a safe haven for your savings. This can help balance out the ups and downs in your retirement portfolio.
Another big plus is gold’s ability to act as a hedge against inflation. As prices go up, the value of gold tends to rise too, helping preserve your purchasing power over time.
This is particularly handy as you move into retirement and want your savings to stretch further.
Gold also offers growth potential. While it might not have the explosive returns of some stocks, it provides steady, reliable growth that can complement your other investments.
3. Real Estate Investment Trusts (REITs)
Ever wanted to invest in property without the hassle of managing tenants or general upkeep? Real Estate Investment Ttrusts might be for you!
REITs are companies that own a portfolio of income-producing properties – like homes or warehouses. You can get a slice of the pie by purchasing shares of these REITs as part of your investment portfolio.
When you invest in a REIT, you receive income through dividends and capital appreciation. This investment allows you to expose yourself to the lucrative property market without buying a property yourself.
REITs are most suitable for long-term investors who have time to let the investment appreciate. They are an attractive alternative to pensions because they often offer a high yield.
4. Enterprise Investment Scheme (EIS)
An EIS is a tax efficient investment that was designed to encourage investment in small, high-risk companies. The scheme was put in place in 1994 to help small companies raise capital.
Investors can claim up to 30% income tax relief on the amount invested in EIS-eligible companies, up to a maximum annual investment of £1 million. To be eligible for this tax relief, shares must be held for at least 3 years.
Another perk of investing in an EIS is that returns are exempt from capital gains tax – as long as you’ve held the shares for 3 years!
As well as tax benefits, EIS investments have the potential for significant growth. While they are riskier than more traditional investments, the potential for high returns could make them a valuable part of a diversified retirement portfolio.
5. Bonds
A bond is like an ‘IOU’ from the government that helps them to borrow money, and in return, they promise to pay you back with a bit of interest on top.
So, why might bonds be a good idea for those saving for retirement? Well, they’re generally considered to be safer than stocks because they are less volatile.
Bonds offer a regular income stream through interest payments, which can be a real comfort as you approach retirement and start thinking about steady cash flow rather than risky bets.
Bonds can also help balance out your investment portfolio. When the stock market takes a dive, bonds often stay steady or even go up in value, which helps to smooth out the bumps.
This makes them a great choice if you’re after a mix of security and income as you plan for your retirement years.
Investing outside of a pension scheme is an excellent way to diversify your retirement pot and maximize your potential returns.
The 5 investments that I have mentioned are amongst some of the most popular ways to invest for retirement However, there are plenty of other options out there! I recommend doing a bit of digging before putting any of your money at risk.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
What the best pension scheme private wise?