Knowledge is power: Do you know what your pension is worth?

16th April 2018

According to research from the Financial Conduct Authority (FCA), most adults are not paying enough attention to their pension, leading to difficulties in retirement.

Pause for thought

The report shows that many people are not setting aside the time to think about their retirement income, with:

  • 75% admitting they have either not considered their retirement finances at all, or do not give it much thought
  • 45% only stopping to consider their pension provisions in the two years before they plan to retire
  • Many people only reviewing their pension when it is worth more than £20,000
  • Over half (53%) not reviewing their pension fund within the past year

The consequences of ignorance

31% of all adults do not have any pension in addition to the State Pension. Meanwhile, more than a quarter (26%) of over-55s, do not know how much they have in their pension.

Among those with Defined Contribution pensions (for example, a stakeholder pension, personal pension, SIPP and many workplace pensions):

  • 81% have not taken the time to calculate how much they need to pay in now, to ensure a reasonable living standard in retirement
  • 71% do not know what charges they are paying
  • 32% do not know how much their pension is worth
  • 34% report “little or no” trust in their provider

This lack of understanding and trust is likely to be partially due to the absence of engagement with pension providers and the services they offer.

Do you need to know?

In short, yes.

Financial planning for retirement has three key parts:

  1. Defining your goals, and how much retirement income you will need to meet them
  2. Knowing what your pensions, as well as other savings and investments will provide
  3. Finding ways to bridge any gaps between the two

Without careful retirement planning, you put yourself in danger of:

  • Running out of money
  • Not having enough to provide a liveable income
  • Missing mortgage payments, if you have a mortgage outstanding, and potentially losing your home
  • Being unable to leave the financial legacy you want for your loved ones
  • Not enjoying the retirement lifestyle you want

How should you review your retirement planning?

1.Make sure you include all your pensions

Before reviewing your retirement plans, make sure that you have identified all pensions you have paid into. If you think you may have a pension elsewhere that you can’t find, you can trace the contact details of the provider through the government’s pension tracking service here. Alternatively, why not let us do the hard work for you?

2. Check your State Pension

To qualify for a Full State Pension, you will have to have paid your National Insurance or have received credits for 35 ‘qualifying years’. You can check your National Insurance Record here.

To find out what you can expect from your State pension, use the forecasting tool here.

3. Review your workplace pension(s)

How you do this will depend on the type of pension you have.

If you have a Defined Contribution Pension, you will have to contact your provider or your employer’s HR department. However, if you are in a Defined Benefit, or Final Salary scheme, you will need to contact the trustees directly. Alternatively, your financial adviser or planner will be able to find out this information on your behalf.

Gather as much information as you can, but the key questions are:

  • How much is currently in it?
  • How much do you and your employer contribute?
  • How much are you likely to have available when you retire, if you continue without increasing your contributions?

4. Include any additional savings and investments you plan to use for retirement

If you have savings and investments which have not yet found a use, you may want to include them in your retirement capital, to boost the income available to you. It is important to take stock of all your resources, so that you know what you have available and whether you are on the right track to meet your retirement goals.

Next steps

From this point, you can begin to take steps to bridge any gaps between your current situation and the lifestyle you want to achieve by the time you finish working. To do so, you have three options:

Lower your expectations: Your first, and least favourable option is to concede that you will have less money in retirement than you planned, and simply accept that you will have to make some sacrifices in your lifestyle to meet your budget.

Put more in: You could increase the amount you put into your pension each month to boost your retirement fund and give yourself a bigger income when you stop working.

Extend your income: If you are still working, you may want to consider continuing to do so until you have a sufficient pension fund to retire and enjoy the lifestyle you desire. Remember, if you do continue to work, you can delay your State Pension and increase the income you will receive when you access it later.

Finally, you should seek independent financial advice to make sure that you are on the right track to meet your retirement objectives. So, when you’re ready, feel free to get in touch.