If you’ve been diligently saving into your pension, you’ll want to know how your investments are performing, which your annual pension statement can tell you.
Pension providers send statements out every year to customers and they contain lots of important information, including the current value of your pension, and what sort of income you can expect from it when you retire.
Here’s everything you need to know.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
What is an annual pension statement?
Your annual pension statement is a document that you’ll receive each year from your pension provider. It provides you with a summary of your retirement savings and how your pension has performed over the last year.
It’s a useful document that can help you to see clearly how your pension is doing, and where your money is invested. This information can ultimately be used to help you plan your retirement effectively.
The exact contents of pension statements and their layout varies between providers, and will also depend on the type of pension you have.
Defined contribution pensions - what does your pension statement tell you?
The majority of pension savers are contributing to defined contribution workplace pension schemes (or defined contribution private pensions) and for these types of pensions, your provider is legally obliged to give you a pension statement annually. You may receive this via email or through the post, but if you haven’t received one, you may want to contact your pension provider to request this.
A defined contribution pension statement will usually provide the following details:
Annual pension performance
Your statement will show how much your pension value has changed over the year. You can expect to see the following figures:
- The current value of your pension
- The opening and closing balance of your pension
- How much you’ve paid into your pension over the year
- How much your employer has paid into your pension
- The tax relief you’ve received
Some providers will show you the above figures for the year and also for the entire period you’ve had your pension.
Investment information
Pension savings are invested on your behalf – usually in a ‘default fund’ unless you have specified you want it to be invested elsewhere – and your pension statement should tell you how your investments have fared over the year. Find out more about default funds in our guide Where is my pension invested?
This figure might show that your investments have grown in value but it could also show that they’ve fallen over the course of the year. It’s important to remember that pensions are long-term investments, and the hope is that remaining invested will give you the best chance of riding out any volatility. You can find out more about this in our article Nine tips for maximising your pension savings in difficult times.
Charges
It’s common for pension providers to apply charges to your pension savings. They’re usually a percentage fee, but the figure will vary between providers. You can read more about these charges in our article What pension charges am I paying?
Your pension statement will outline the charges you’ve paid over the year and should break down the fees clearly for you.
Retirement projections
Your pension statement will give you an estimate of how much your pension could be worth at retirement based on a number of assumptions, and also how much income your pension could provide.
These figures assume that you’ll continue to pay into your pension until you reach retirement age, and are based on a particular rate of investment growth. However, it’s important to remember that no one can predict with certainty exactly how your investments will perform, so these figures shouldn’t be taken as the actual amount you will receive at retirement.
Your provider may also offer tips to boost your pension pot, whether that’s paying in more, saving for longer and so on.
Defined benefit pensions - what does your pension statement tell you?
If you have a defined benefit pension, also known as a final salary pension, then your pension statement will contain different information compared to those with a defined contribution pension.
Firstly, it’s worth noting that your pension provider won’t necessarily send you a statement annually, but you have the right to ask for one, so speak to your provider if you’d like to receive one.
A defined benefit pension statement will usually include:
- Your pensionable salary – the proportion of your salary that your provider uses to calculate your pension income
- What your pension value will be at retirement – this is based on your pensionable salary
- The length of time you’ve been part of the scheme
- The rate at which your pension will accumulate – for example, 1/60th or 1/80th of your pensionable pay
- Details of any charges or fees that you’ve paid
- What your retirement benefits would look like if you worked until your planned retirement date
- What your retirement would look like if you retired within a month of your pension statement issue date.
As a minimum, your statement will include your salary, how long you’ve been in the scheme and your expected retirement income if you worked until your scheme’s retirement date.
How might a pension statement help you achieve the retirement you want?
The information contained in your pension statement can be used to help you address any areas of concern and work towards achieving your retirement goals.
For example, a pension statement can help you:
Check you’re in the right fund
Most defined contribution workplace pensions invest in particular funds, and unless you’ve chosen otherwise, you’ll usually be put into a so-called default fund. Default funds are a one-size fits all type of fund which automatically move your investments into less risky funds as you approach retirement.
However, if you’ve still got a while until you retire, you might be more comfortable with taking a little more risk with your investments. Besides, you might also plan to remain invested well into retirement in a pension drawdown plan. Pension providers usually have a range of funds to choose from, so you might find one that could better suit your needs. Read our article Where is my pension invested? for more guidance on choosing the right option for you.
Review your charges
Most defined contribution workplace pensions invest in particular funds, and unless you’ve chosen otherwise, then as previously mentioned, you’ll usually be put into a so-called default fund. Default funds are a one-size fits all type of fund which automatically move your savings into less risky investments as you approach retirement.
However, if you’ve still got a while until you retire, you might be more comfortable with taking a little more risk with your investments. Besides, you might also plan to remain invested well into retirement in a pension drawdown plan. Pension providers usually have a range of funds to choose from, so you might find one that could better suit your needs.
Work out if you’re contributing enough
Seeing the progress of your pension over the years in black and white could be a wakeup call if your savings aren’t growing as fast as you thought they might be.
The obvious way to boost your pension is to pay more into it, but this is unaffordable for many people, particularly when living costs have soared. If you’re able to pay more in, though, this is worth doing, particularly when stock markets have fallen. That’s because your money buys more investment units when the stock market falls, and fewer when it rises, which could boost the value of your pension over time.
Pension contributions also benefit from generous tax relief, which significantly increases their value You can read more about this in our guide How pension tax relief works.
Finally…
Understanding what your pension statement means, and whether you’re on track for a comfortable retirement can be tricky. It’s important to make the right decisions for your personal circumstances, so it can be helpful to speak to a professional financial advisor to guide you through the process.
You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide on How to find the right financial advisor for you.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
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