You don’t have to devote hours every week to make sure your pension pot is working as hard as it possibly can for you, but spending a small amount of time regularly – or getting a professional pension adviser to check your pension for you – can reap significant rewards over the long term.
Your pension is arguably the most important investment you will ever make, and how it performs could mean the difference between enjoying a comfortable retirement and just scraping by.
Here are eight pension checks we should all make:
1. Is your pension invested in the right funds for you?
Your pension provider will usually offer a range of different funds to choose from. If you didn’t choose where to invest your pension contributions, your provider will usually invest your money in its “default fund”. This will generally invest in riskier investments such as stocks and shares when you are younger, gradually moving your savings into less risky assets such as bonds and cash as you near retirement. However, there might be other funds that suit you better, so it’s vital to check your pension, review all the options available and to consider which might be most appropriate for you based on your financial objectives and your approach to risk.
2. How are your pension investments performing?
When you decide to check your pension, you should not only look at whether it has been invested in funds which are appropriate for your risk profile, but also how these investments are performing. While past performance is not an indicator of how an investment will perform in future, it’s still worth checking whether your pension fund beats its benchmark. This is essentially the standard each fund measures itself against to enable people to assess how it is performing and whether rival funds are doing better.
3. What are your pension charges?
Fees and charges can take a big chunk out of your pension investment growth, so make sure you understand exactly how much your pension costs. Even reducing charges by a small amount could make a big difference to the amount you end up with at retirement. Profile Pensions reduces annual provider charges (platform and fund) on average by 69 per cent*, which increases the average pension by £243 a year, or by more than £9,000 over its lifetime**.
4. How flexible is your pension?
Find out what options your pension offers you when you reach retirement. For example, when you reach the age of 55, can you withdraw your retirement savings as and when you need them, while leaving the remainder invested? If you have a pension from before 2015 when pension freedoms were introduced, you may not benefit from this flexibility.
5. Have you nominated a beneficiary for your pension?
If you have a defined contribution pension, make sure you’ve nominated a loved one to receive your pension in the event that you die before you retire, whether it be a family member or close friend. If you haven’t nominated anyone, the trustees of your pension can award it to anyone who is financially dependent on you, for example, your partner or children.
6. Do you have any pensions you have forgotten about?
According to the Department for Work and Pensions, an average person will have 11 jobs in their lifetime, often signing up to their employer’s workplace pension each time they start a new role. Research carried out by the Association of British Insurers found that as much as £20 billion could currently be sitting unclaimed in as many as 1.6 million pension pots*** because people have lost track of their savings. If you think you have a forgotten pension, try using the Government’s free tracing service at www.gov.uk/find-pension-contact-details to help you locate it.
7. Could you make your pensions easier to manage?
If you have got lots of different pensions, perhaps because you have worked for several employers over the years, think about whether consolidating them into a single plan might make your retirement savings easier to manage. You will need to make sure you are not giving up any valuable benefits if you decide to transfer your pension – an adviser can let you know whether you would be better off staying put.
8. How much will the State Pension provide you with?
It’s not always easy to know whether your pension or pensions will be enough to provide you with the retirement you want, especially as you also need to factor in how much the State Pension will provide you with.
The new State Pension applies to those reaching retirement age on or after 6 April 2016 and is £175.20 a week in the 2020/21 tax year. You will only be eligible for this amount if you have made 35 “qualifying years” of National Insurance contributions. You will get qualifying years every year you are in work, earning a certain amount and paying National Insurance – or if you are paying voluntary National Insurance contributions. If you don’t have 35 qualifying years of National Insurance contributions, you will get an amount based on the number of years you have paid in. Profile Pensions’ pension calculator can help you work out how much income you will need in retirement, and takes into account how much you are likely to get from the State Pension too.
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Capital at risk. Past performance is not a guide to future performance. This website does not constitute personal advice. If you are in doubt as to the suitability of an investment, please contact one of Profile Pensions’ advisers. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.
Telegraph Media Group Limited is an Introducer Appointed Representative of Profile Pensions, a trading name of Profile Financial Solutions Limited, which is authorised and regulated by the Financial Conduct Authority. FCA Number 596398. Registered in England & Wales, Company Number 07731925. Registered Office address: Norwest Court, Guildhall Street, Preston PR1 3NU.
* Average annual pension charge of 3,713 pensions that Profile Pensions reviewed between January 2019 and October 2019 compared to Profile Pensions’ typical recommended pension as of 16/10/2019
** Based on an existing pension pot of £32,000, with a 20-year investment horizon, 3 per cent growth per annum and a reduction in provider fees from 1.1 per cent to 0.34 per cent
Information correct at date of publication.