If you’re in the race to retirement, it can be easy to forget about some of the checks you need to carry out to ensure you don’t hit any hurdles on your way to the finish line.
Making sure your finances are properly prepared for such a big adjustment can take a bit of time. But the more organised you are, the clearer the picture you’ll have of what sort of income your retirement savings will provide you with, and the level of risk you’re prepared to take with your pension pot. Ideally you’ll start planning around five years before you retire, but if you’ve only got a year or two before you finish work, you still have time to review your finances and get to grips with where you stand.
Remember that retirement planning can be complicated, so if you need help working out the best options for you based on your individual circumstances, you may want to seek professional help.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. 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 1,500 reviews on VouchedFor, the review site for financial advisors.
1) When did you last review your pension?
A pension isn’t something you can take out and forget about (sadly!). You’ll get the best from your pension if you read your pension statements so you’ll know how much your pension is worth and what its value could be in future.
Think about paying extra if you can afford it and keep an eye on how your money is invested? As you get nearer to retirement age, you’ll probably want to have less of your savings invested in shares (which can fall in value quite easily) and more in lower risk investments such as cash and bonds. Your pension provider may do this automatically if you are invested in their ‘default fund’ but it’s worth checking.
You might have a rough idea of the date when you want to stop work, but if you’re not sure whether your retirement savings are on track, or whether you might need to give them a boost in the run up to finishing work, it’s worth using an online pension calculator. This is far more constructive than simply throwing a random sum of money into a retirement pot every month and hoping for the best.
2) Have you located all your pensions?
If you’ve worked for several different employers over the years, or have moved home a few times, there’s a chance you might have lost track of one or more of your pensions.
If you think this might be the case, it’s worth writing a list of each company you’ve worked for and going through old paperwork to see if you can locate any pension details that could help reunite you with your money.
If you’re not having much luck, the government’s Pension Tracing Service may be able to help. You’ll need the name of your old employer or pension provider to use the service, which should be able to help you find the contact details for your workplace or personal pension scheme. Learn more in our guide to Tracing lost pensions.
The Labour government has proposed plans to automatically consolidate smaller pension pots to help workers keep track of their old pensions and reduce the charges they pay, but this will take some time to come into effect. In the meantime, if you do have several pensions that you struggle to keep track of, it’s worth thinking about whether consolidating them might be right for you.
Having all your pension savings under the same umbrella can make managing your money more straightforward, as you’ll only have one pension statement to review each year and one set of investments to keep an eye on. You may also be able to reduce the charges you pay. You need to check you aren’t giving up any valuable guarantees by consolidating your pensions, however. For example, moving a final salary or defined benefit pension into a personal pension plan is rarely the right decision. Find out more in our guide Should I transfer my final salary pension?
3) Do you need to plug any gaps in your National Insurance record?
If you haven’t already, it’s worth requesting a State Pension forecast. It’s surprising what gaps there may be in your National Insurance contributions record. Currently you need 35 years of National Insurance for a full basic state pension.
If there are gaps in your National Insurance record, you can buy qualifying years by making Class 3 contributions. You can buy up to 10 years’ contributions at a rate of £17.45 per missing week of NI contributions (£907.40 per year). This will boost your pension by £5.82 a week, or around £302 a year. Bear in mind that you can only usually make up gaps from the previous six years.
Although buying extra years to plug any gaps in your NI record can be good value for money and potentially increase your State Pension by thousands of pounds over your lifetime, it’s not always the right thing to do. Whether it’s worthwhile will also depend on factors out of your control such as how long you live beyond State Pension age.
Read more in our guide Is it worth paying to top up your State Pension?
4) Will you take your tax-free lump sum?
If you’ve been saving into a pension, before you reach retirement you’ll have to decide how much you’d like to take as a tax-free lump sum and what you’d like to do with it. With personal or stakeholder pensions, you’re able to take 25% as a tax-free lump sum. If you’re a member of a pension scheme through your work, the limit may be lower, depending on the rules of the individual scheme.
You don’t have to take the full 25% at once if you don’t want to. You may decide, for example, that you want to take a smaller amount, or that you don’t want to take any money for now so that your pension savings will (hopefully) benefit from investment growth for longer. Another option may be to take smaller regular amounts from your pension and opt for 25% of each of these payments to be tax free.
Regardless of which option you choose, it’s worth considering how and when you might take your tax-free cash, and what you might use it for. Learn more in our article What’s the best way to use my 25% pension tax-free cash?
5) Have you had your Pension Wise appointment?
Pension Wise is a free government service that is supposed to help people make sense of the choices they’re faced with at retirement. You can access Pension Wise online, via a phone appointment or face-to-face (although not many locations are set up for face-to-face meetings).
Pension Wise is not there to recommend products but to, for example, point out the consequences – in the form of a larger than expected tax bill – of taking a large chunk of money out of your pension in one go.
If you want tailored recommendations or advice on your specific situation, you’ll need to seek professional advice.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. 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 1,500 reviews on VouchedFor, the review site for financial advisors.
6) Will you still have a mortgage?
High living costs and rising mortgage rates in recent years mean that repaying your mortgage by the time you reach retirement can seem impossible.
If you’re likely to still be paying your mortgage when you retire, and your income is going to reduce, it may be worth exploring options which could allow you to reduce your monthly payments, leaving you with more to live on.
For example, a retirement interest-only mortgage enables you to continue making interest-only mortgage payments indefinitely, with the capital usually only paid back when you die or move out of your home and the property is sold. This differs from standard interest-only mortgages, which run for a specific term, at which point you must repay the capital owed. Read more in our article How retirement interest-only mortgages work to find out more.
If you’re not sure how you’ll manage your mortgage when you stop working, it’s worth seeking professional advice on the various options which might be available to you.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
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