Can you remember the last time you sat down with your annual pension statement and checked whether you’re financially on track for retirement?
If it’s any consolation, if you haven’t got a clue when you last reviewed your pension, you’re far from alone. According to research from Standard Life, part of Phoenix Group, a staggering one in four (24%) people aged 55 and over claim they have never checked their pension at all.
Women are more likely to be in the dark about their retirement savings than men, with as many as one in five (19%) women admitting they have never checked any of their pensions – almost double the number of men (10%). Mike Ambery, Retirement Savings Director at Standard Life said: “People sometimes think that pension saving is something that happens in the background, with no real need to check up on it until retirement. However, taking a look at your pension is a great first step in planning for your long-term financial future and it can be easier to do than you think.”
Here are four pension checks all of us should carry out to help us understand whether we need to make changes to our retirement savings.
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) How much income is your pension likely to provide you with in retirement?
If you want to find out whether you’re likely to be able to afford to stop working at your target retirement age, you’ll need to find out how much income your pension savings are likely to provide you with. Of course, this will depend on many different factors, including how you decide to take an income, but you should be able to get a rough estimate from your latest pension statement.
Mr Ambery said: “Your annual statements will provide an estimate of your future pot value, and the regular retirement income your pension is on track to generate. This is based on you using your pension pot to buy a guaranteed income for life (known as an annuity), although there are other ways to access your savings.”
Learn more about the information your pension statement provides you with in our article Your annual pension statement explained and about the sort of income different sized pension pots might provide you with in our guide What income could a pension worth £100,000, £150,000 and £500,000 give you?
2) Can you make top up payments?
If you’re worried about facing a savings shortfall when you retire, and you can afford to do so, you might want to consider boosting the amount you’re putting away each month. Your pension statements will tell you how much you’re currently contributing, and you’ll then need to consider how much you can boost these contributions by.
“You can check what you contribute to any personal, workplace or self-employed pensions through your pension statement,” said Mr Ambery. “You can also make any additional payments into your pension at any time you like. To top up your private or workplace pension, you can usually make both regular contributions and one-off lump sum payments.”
Topping up a pension not only increases your retirement income in the future but can also reduce your income tax bill because any contributions attract tax relief at your marginal rate. You can learn more about this in our article How pension tax relief works.
Alice Haine, personal finance analyst at Bestinvest for Evelyn Partners said: “Remember, those with assets held outside a tax wrapper can also consider taking advantage of Bed & ISA or Bed & Pension rules to transfer assets. This is where investors can sell shares and funds, taking care not to incur a capital gains liability in the process, and then repurchase them within an ISA or Pension – a move that protects those assets from future tax on both income and gains.”
3) How much are you paying for your pension?
Many people don’t give much thought to the charges they are paying for their pension, with a recent survey carried out by Moneyfarm revealing that over half (51%) of us have no idea about the various types of charges we could be paying on our pension. Nine out of 10 (90%) of more than 2,000 people questioned said they didn’t realise platform charges were associated with having a pension, 83% weren’t aware that fund fees were payable, and 68% didn’t realise that management fees existed on their pension scheme.
Carina Chambers, pensions technical expert at Moneyfarm said, “A seemingly small amount in fees can lead to significant shortfalls over the long term. The difference between 2.5% and 1% doesn’t seem much, but when it comes to pensions, we are talking about a large amount of money which is invested over a long period of time. That apparently small percentage difference therefore compounds, so the losses we are talking about can be very significant.”
Separate analysis carried out by AJ Bell found that someone combining three pensions with charges ranging from 0.75% to 1.5% could potentially boost their retirement savings by more than £7,000 over 10 years or £20,000 over 20 years if they were to switch to a single, lower-cost account charging 0.45%.
However, if you do have pensions with steeper charges, make sure you seek advice before transferring them, as you don’t want to risk giving up valuable guarantees. Learn more in our guide Should I consolidate my pensions? and about pension charges in our article What pension charges am I paying?
4) Are your pension investments still right for you?
Do you know where your pension savings are invested? If the answer is no, then there’s a chance your money may be in funds which are no longer appropriate for your needs.
Many default pension funds involve what’s known as ‘lifestyling’. This essentially means that your money is moved into safer investments such as bonds and cash as you approach retirement. This is to help minimise the risk of any sudden market setbacks causing the value of your retirement savings to plummet just when you need them. However, this option won’t necessarily be right for you and your own views on risk and investing could mean you’d be better off with something completely different.
Check with your pension provider which funds you can invest in. They should provide you with information about all the options available to you. You’ll usually be able to choose from cautious, balanced or more adventurous options, so you can find a fund which matches your appetite for risk and your financial objectives.
If you want personal recommendations about where to invest your retirement savings, you’ll need to seek professional financial advice. Find out more in our articles Where is my pension invested? And What is pension lifestyling?
A final thought…
If you struggle to remember to check your pension, mark a date in your diary to do it so you don’t forget. You don’t have to check it every week or even every month, but it’s important to have a rough idea of how much you’ve saved, so always review your annual statement carefully.
Mr Ambery said: “You should aim to review how much is in your pot at least once a year to give you a better idea of how to plan, whether that’s deciding if you should increase your pension contributions or change the type of investments in your plan.
“For those who are getting closer to retirement age, staying on top of what’s in your pot may also help you decide how long you’ll need to continue working, whether to consider a phased approach to retirement and the type of retirement you’ll be able to afford.”
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.
Rest Less Money is on Instagram. Check out our account and give us a follow @rest_less_uk_money for all the latest Money News, updated daily.