Financial pitfalls that could easily have been avoided
Managing retirement plans and paperwork can seem daunting in our fast-paced, constantly evolving world. Yet, it’s an essential chore that should not be pushed aside. Not staying up-to-date with your retirement plans can result in financial pitfalls that could easily have been avoided.
But worryingly, according to new research, 32% of Britons place pension administration at the bottom of their to-do list, even ranking it below managing hair and beauty appointments or planning holidays [1].
Interestingly, more than a fifth (22%) of pension savers confess that they fail to check their pension annually, not due to apathy but because they are uncertain about the process. An additional one in seven need help finding their pension information.
Pension engagement season is a time for a rethink
As Pension Engagement Season gears up, it is concerning to note that pensions rank last on Britons’ ‘life admin’ to-do lists. This is despite pensions’ crucial role in shaping people’s financial futures. The task of managing personal appointments with hairdressers or beauticians takes precedence over pension paperwork for 24% of respondents. Meanwhile, 18% prioritise planning holidays over reviewing their pension plans.
When consumers finally tackle pension administration, the research reveals that 27% only check their pension once a year or less frequently. Alarmingly, 14% confess to never having inspected their pensions.
Knowledge gap is a barrier to pension management
Among those who do not check their account at least annually, a fifth (22%) admit that they refrain from doing so simply because they lack knowledge about the process. This percentage escalates to a third (34%) among 35-54-year-olds, compared to 26% of 18-34-year-olds and 11% of over-55s.
A total of 16% of those who infrequently check their pension claim that they do not know where to access the information. Furthermore, 15% confess that they don’t know how to check it, while 13% feel their savings are too meagre to warrant engagement with their pension. Additionally, 12% avoid reviewing their pensions because they find the process overwhelming.
Understanding your current pension status
It’s not uncommon for many of us to be in the dark about the exact amount we’ve saved up in our current pension plan. However, it’s crucial to clearly understand your savings as this can reveal gaps between what you already have and what you might need for a comfortable retirement.
Your review should consider everyday expenses, occasional splurges like gifts and holidays, large purchases, and an emergency fund for unexpected costs. Remember to include any pensions from former employers or personal plans in your assessment. If you suspect that you’ve misplaced some pension information over time, the government’s pension tracker website is a resource that could help.
Leveraging workplace pensions
In today’s economic climate, short-term spending needs may take precedence. Nevertheless, when presented with an opportunity to join a workplace pension scheme, it’s generally advisable to seize it. Most employers must auto-enrol their employees into a workplace pension scheme, but you might still be offered a pension plan even if you’re not eligible for auto-enrolment.
Workplace pension schemes comprise your contributions (usually 5% or more of earnings, this can vary depending on the arrangement with your employer), deducted directly from your salary before tax, and your employer’s contribution, which must be at least 3% of your earnings. Many employers offer to match your additional payments, so ensuring you’re maximising this benefit is worthwhile.
Regular reviews of your pension investments are essential
Consider upping your pension contributions. Even small, regular monthly payments can accumulate significantly over time, thanks to the power of compounding. Also, contemplate making one-off payments into your pension, such as when you receive a work bonus or an inheritance.
Life is ever-changing, and your retirement plans should adapt accordingly. Your envisioned retirement age may have shifted, or your financial circumstances may have evolved. It’s important to note that you don’t have to wait until the State Pension age (currently 66) to access your workplace or private pensions. You can typically begin drawing from these at age 55, although this will increase to 57 from 2028.
However, accessing your pension benefits early could restrict future savings and leave you with a smaller retirement income. Furthermore, your investment choices when establishing your plan may need to be revised. Regular reviews of your pension investments are essential to ensure they continue to align with your goals.
Diversifying your investments over time
Pension savings, being invested funds, can fluctuate in value. However, these fluctuations shouldn’t cause undue worry. Remember, pensions are long-term investments that usually yield better returns over extended periods than traditional savings accounts.
To mitigate the risk of significant fluctuations, consider diversifying your portfolio by investing in various asset types. Most workplace default investment options already provide this diversification, and many personal pensions offer packaged investment options for those who prefer to avoid building their portfolios.
Simplifying your retirement and consolidating pension plans
Pension administration can prove challenging, especially if you’ve accumulated several plans over the years from different jobs. Consolidating these into one plan can streamline your paperwork, provide a clearer view of your overall pension value, simplify investment tracking and potentially reduce charges.
However, consolidation is only suitable for some. There’s no guarantee of a better pension plan through consolidation, and you might lose valuable benefits or guarantees from other plans. Thus, seeking advice before consolidation is crucial.
For more information or to discuss your retirement plans, feel free to get in touch. We’re here to help you navigate your retirement planning journey with confidence.
Source data:
[1] Research conducted amongst 2,000 UK adults on behalf of Standard Life by Opinium from 29 August–1 September2023.
THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).
THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, 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.