Pension Awareness Day is just around the corner and is the perfect time to review your pension to make sure you’re getting the most out of it. So, ahead of 15 September, Keith Bonner, Managing Partner and Independent Financial Adviser at Pembroke Financial Services, sets out seven things you can do to get your pension into shape.
1. Check your pension savings
Start by looking at the headline figure; how much do you have in your pension? And how is it forecast to change?
Keith said: “Being able to see how your pension is growing and the forecast value at retirement can help you keep motivated and understand if you’re on track. As well as having a lump sum in mind when evaluating your pension, it’s important to understand how this will translate into an income in retirement. You may have a goal to save £300,000, but what will that mean for your lifestyle? This is a question financial planning can help you answer.”
2. Take a look at your pension’s performance
As your pension is invested over the long term, assessing performance is important. It could have an impact on the retirement lifestyle you can look forward to. When reviewing your pension, keep a long-term view. Rather than focussing on how the value of your pension has changed in the last month or even year, look at the bigger picture. Investing means your savings will be exposed to some short-term volatility, what’s important is the overall trend.
If you’re not sure how your pension has performed or if changes would make sense for you, please contact us.
3. Review how your money is invested
Keith added: “Do you know how your pension is invested? By investing your retirement savings, there is an opportunity for the money to grow over the long term. Pension providers will usually offer several fund options for you to choose from. However, if you’ve never looked at how your pension is invested, it’s likely your money is in the default fund.”
For some savers, this will be the right fund option for them, but it’s something you should check. The funds on offer will cover a range of risk profiles and some may incorporate ESG (environmental, social and governance) issues.
4. Find out when your retirement date is
Your pension provider will set a retirement date for you. This will be used as part of your pension forecast but it may also be used to inform how your pension is invested. For example, some providers will start to reduce the amount of investment risk you’re taking as you approach your retirement date.
Make sure the assumption your provider has made is correct, it could affect your pension’s performance and whether decisions suit your plans.
5. Speak to your employer about the pension incentives they offer
Most employees will now benefit from employers contributing to their pension at a minimum rate of 3% of pensionable earnings. However, many employers offer additional incentives that you could take advantage of.
“Some employers, for instance, may increase the amount they contribute if you increase your own contributions. Alternatively, a salary sacrifice scheme could mean you end up with far more in your pension. It’s worth reviewing what your employer offers and if it can help you create a more secure retirement,” Keith explained.
6. Check if you’re receiving the correct amount of tax relief
Tax relief provides a boost to your pension contributions to encourage saving. Essentially, the government adds some of the money you would have paid in Income Tax to your pension when you contribute. Tax relief is given at your nominal Income Tax rate.
In most cases, a basic-rate taxpayer’s tax relief is automatically claimed by the pension provider. However, this isn’t always the case and if you’re a higher- or additional- rate taxpayer, you need to fill in a self-assessment form to claim your full entitlement.
7. Rediscover any “lost” pensions
Keith concluded: “Losing a pension is easier than you might think. Moving homes or switching jobs can mean you end up with pensions that you’ve forgotten about. Take some time to review all your workplace pensions and ensure providers have the correct details.”
The Association of British Insurers (ABI) estimated there were 1.6 million “lost” pensions in 2020 with a total value of £19.4 billion. One of the reasons for this is that just 1 in 25 people think to tell their pension provider when they move home. Even a small pension pot can help to boost your savings. The government’s pension tracing service can help you find lost pensions.
If you discover forgotten pension savings, you may want to consider consolidating them. It can help make it easier to keep track of your retirement savings and reduce fees. However, there are drawbacks to consider too, we’re here to discuss your options.
If you’d like to review your pension and make sure you’re on track for the retirement you want, please get in touch. We’ll help you understand the lifestyle your pension will offer and whether you’re getting the most out of your savings.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.