By using pension funds you can avoid living an old age of hardship due to the meager public pension. But are they really old age insurance? Let’s clarify costs and returns.
The pension funds are one means of saving for the long term that have as main purpose the pension integration. They are therefore used to bridge the inevitable social security gap between the public pension and the last income received by workers.
Talking about the best pension funds is not always correct: it would be better to evaluate the right pension funds for each before making an investment.
Does it really make sense to invest in pension funds? There has been a lot of talk about better pension funds, cheaper pension funds, and more profitable pension funds, but the truth is, the best pension funds, to put it bluntly, don’t exist.
However, there are profitable pension funds, if activated after careful analysis and an in-depth study phase. So what are we talking about, when we talk about (best) pension funds and when does it make sense to invest in this direction?
A valid pension fund, which deserves an investment, always respects the phases, specifically:
- The contribution phase, with the relative payment to the fund and the subsequent crediting of the positions of each member.
- The management phase during which contributions and interest are invested
- The individual capitalization phase in which the worker can know about the benefit he gets.
- Disbursement phase during which the benefits resulting from the amount paid over the years in which the fund was activated will be paid
Based on the best pension plans companies that sets the plan and who can join them, pension funds are divided into three different categories: open pension funds, PIPs – individual pension plans and closed pension funds.
To choose the most suitable lifetime retirement investment scheme, it is necessary to look on the one hand at the time horizon available before retirement and on the other hand at one’s own personal risk appetite.
Generally, within each pension fund it is possible to distinguish between four different types of sectors:
- The equity sector invests mainly in equities and despite being more risky it offers generally higher returns in the long term
- The balanced sub-fund that invests partly in equities and partly in bonds and represents a cross between equities and bonds
- The bond sector invests mainly in bonds and government securities, typically less risky but with lower yields
- The guaranteed sector that guarantees the return of the paid-up capital
There is no generic answer, as mentioned, the choice of the pension fund depends on the time horizon in front of you and on the personal risk profile that is the willingness of each to tolerate the normal fluctuations of the financial market.
The greater the risk attitude and above all the time horizon available, the more dynamic sectors such as equities or the balance between equities and bonds are indicated.
On the contrary, if retirement is shortly missing, or if you feel more prudent with a lower risk attitude, then the recommended retirement investment plans are those with the most bond component therefore balanced prudently or guaranteed, the only one that ensures the repayment of the amount paid.