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When we reach our 50s or 60s, pensions often stop feeling like something that’s in the distant future, and become something we realise we need to focus on a bit more urgently.
The chances are that over the years you might have changed jobs several times, taken career breaks, worked flexibly, or taken on caring responsibilities for elderly parents. All this can leave your pensions looking more complicated than you might have hoped.
The good news is that you don’t have to take any radical action immediately to get your retirement savings back on track. A few simple checks now can help you understand exactly where you stand, whether there are any gaps you need to tackle, and if there are any other changes you can make to ensure your long-term financial security.
Here, we look at 5 key areas that are worth reviewing, and why each one matters.
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If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide Chartered independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial adviser. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 2,600 reviews on VouchedFor, the review site for financial advisers.
1. Where your pensions are and what they’re worth
Lots of us will have numerous different pensions we’ve paid into over the years because we’ve worked for several different employers. That can make it really difficult to have a clear idea of the exact value of all your retirement savings.
It also means that you might have one or more pensions that you’ve lost track of altogether, which could result in you missing out on valuable retirement income in future.
Start by thinking about all the jobs you’ve had in the past, and jot these down on a piece of paper. You should then try to remember whether you contributed to the workplace pensions offered by each of your employers. Think about periods when you weren’t working too, or perhaps were self-employed – might you have paid into a personal pension during these periods, or did your spouse or partner make contributions on your behalf?
Once you’ve got an idea of how many pensions you might have, you need to locate them, so see if you have any paperwork that provides you with contact details. If you’re not making much headway, for example, because you can’t find the contact details for your previous employer, the government’s Pension Tracing Service may be able to help.
You’ll need the name of an employer or pension provider to use the service, but provided you have that, the service should be able to help you find the contact details for your workplace or personal pension scheme. The service won’t, however, tell you whether you have a pension, or what its current value is.
As well as using their online service, you can also contact the Pension Tracing Service by phone on 0800 731 0193. Learn more in our article Tracing lost pensions – How to find my old pensions.
2. How much you might be paying in charges
When looking at our pension statements, we often focus on how much we have saved, rather than how much our pension provider is charging us to manage our money. Charges really matter though, as over time they quietly eat into your retirement savings, reducing the amount you end up with when you stop work.
There are various different pension charges that you need to pay attention to. Arguably the most important is the annual management fee, which is a percentage of your pension that is taken by your provider each year to run and invest your pension.
Newer pensions tend to have annual management fees ranging from around 0.3% to 0.6%, but if you belong to an older scheme, you might be paying from 0.75% to well in excess of 1%. As a rule of thumb, if you’re paying more than 1%, you need to see whether you might be able to reduce your charges.
You should also look at your pension fund charges. These fees cover the management of the particular fund or funds your pension is invested in. They may be bundled into the annual management charge, but they aren’t always. If your money is held in a tracker fund, which tracks a particular stock market index, charges may typically be between 0.05% and 0.3%. This rises to 0.6% to 1% or more if the fund is actively managed by a fund manager who chooses which investments to hold. Find out more in our guide What pension charges am I paying?
If you’re thinking of moving or consolidating your pensions to reduce your pension charges, check for any exit fees or penalties first. These matter mainly for older pensions but can take a big chunk out of your retirement savings if you’re not careful. Learn more in our article Could combining your pensions save you money?
3. Whether your pension is invested appropriately for you
A common mistake many people make as they head towards retirement is to move their savings into low-risk investments too soon, effectively locking in lower growth.
This often happens automatically, as most people tend to stick with their provider’s default pension fund. These funds typically use a process known as lifestyling to move your money out of higher-risk investments and into lower-risk investments as you approach retirement. This is to help reduce the risk of your pension savings plummeting in value just before you retire.
However, this tends to be rather a ‘one size fits all’ approach which doesn’t give you control over when your money is moved. For example, a lifestyle fund could move some of your money (typically up to 20%) out of shares when the stock market is at its lowest; which is normally the worst time to sell. If the stock market then rises, you’ll have missed out on those gains as well.
It’s therefore really important not only to find out where your pension is invested, but also to consider whether there might be any better homes for your retirement savings. If you’re not comfortable going it alone, you may want to consider seeking help from a financial adviser, who can make personal recommendations based on your attitude to risk and your investment timeframe. Find out more in our articles How much cash should you hold in your pension? and Where is my pension invested?
4. Are you contributing enough?
Increasing your pension contributions by even a small amount each month can make a big difference, especially if you’ve still got a few years to go before you plan to retire.
That’s because you’ll benefit from pension tax relief on your contributions, which you can receive right up until the age of 75. If you’re paying into a workplace pension, your employer may also match some or all of any additional contributions you make, giving your savings an extra boost.
Under current rules, the amount of tax relief you receive depends on your income tax band. Most UK taxpayers automatically get tax relief at the basic rate of 20%. This means that if you want £100 added to your pension, you only need to pay in £80, with the government topping it up with the £20 you would otherwise have paid in income tax.
Higher-rate taxpayers can usually claim back a further 20% in tax relief through their tax return, while additional-rate taxpayers can claim an extra 25%, reducing the true cost of contributing even further. Find out more about pension tax relief in our article How pension tax relief works and How do I reclaim higher rate pension tax relief?
If you’re not sure how much you should be paying into your pension, then as a rule of thumb, experts often recommend taking your age and halving it, and then paying this percentage of your monthly income into your pension. Of course, this may not be practical or indeed possible for many of us, so simply try to pay in anything extra you can afford. Learn more in our guide How much should I pay into my pension?
5. When you can access your pensions
Even if you’re confident that your retirement savings are on track, it’s important to understand when you’ll actually be able to access your pensions. Employers used to be able to force you to retire at 65, but since this rule was scrapped in 2011, you can technically retire whenever you want.
However, if you’re hoping to retire early, you’ll need to consider the minimum pension access age, especially as this is changing in the next few years.
Under current rules, most defined contribution pensions taken out directly with a pension provider or through an independent financial adviser can be accessed once you reach the age of 55. This is increasing to 57 in 2028, mainly affecting those born on or after 6 April 1973, and meaning anyone planning to access their pension at 55 or 56 after April 2028 may need to adjust their plans. Learn more in our article When can I retire?
If you belong to a company pension scheme, whether it’s a defined contribution or a defined benefit pension, there will typically be a ‘normal retirement age’ shown in your policy documents. This can vary from profession to profession and scheme to scheme, but it’s typically 65. However, it could be 60 or even younger. You generally can’t retire earlier than this age without receiving a lower pension.
There are only a few circumstances when you might be able to take money out of your pension early, such as ill health. You can read more about this in our guide Can I withdraw my pension early?
A final thought…
Midlife is the time your pension really starts to matter, as you’ll usually have enough time left before you retire for small changes to make a meaningful difference to your retirement.
Simply finding out where all your pensions are, how much they are costing you in charges and where your savings are invested can put you in a much stronger position than doing nothing at all. Increasing your contributions by even just a small amount, especially through workplace schemes where your employer also pays in, can deliver an immediate boost thanks to tax relief.
Just an hour or two reviewing your pensions now could buy you years of flexibility in the future, whether that means reducing the number of hours you work, retiring a little earlier or having a bit more to live on in retirement.
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If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide Chartered independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial adviser. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 2,600 reviews on VouchedFor, the review site for financial advisers.
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