Pensions are one of the most popular ways to save for retirement in the UK.
The potential investment returns and government tax relief make them an effective way to put money aside for later life while you’re working. Your savings will, ideally, provide you with adequate income when you retire.
But do you know the value of your pension?
42% of us don’t know what our pensions are worth
According to research from Aviva, almost half of us (42%) don’t know the value of our accumulated pension pots.
In fact, people in the UK are almost as likely to know the value of their wardrobe (34%) as they are to know the value of their pension (38%).
Just over 2 in 5 people (42%) admitted they don’t know the value of their accumulated pension pots, and 60% don’t know how much their pension funds would generate in retirement income when they retire.
These numbers don’t improve with age. 67% of people aged 45 to 54 don’t know what income their pension might give them when they retire. And 69% of the women couldn’t say what their retirement income might be.
40% of us don’t know how much we should save for retirement
Aviva’s study also revealed that 40% of people don’t know how much they should save into a pension to afford the lifestyle they desire in retirement. This figure increases to almost half (49%) of 35- to 44-year-olds.
Ideally, everyone saving into a pension should have some awareness of the value of their pension and what income their pot is likely to generate when they stop working.
If you are among the 42% of people who don’t know what your pension savings are worth, now is a good time to find out.
Make sure you’re on track to meet your retirement goals
To stay on track to meet your retirement goals, you need to review your pension savings regularly.
Knowing where you’re at will help you estimate the income you can expect when you decide to retire. Plus, if you discover a shortfall in your savings, the earlier you know about it, the more time you’ll have to fix things.
Start by gathering the details for all your pensions, savings and investments you hold. Once you have a complete list, get up-to-date statements from each provider so you can understand exactly what money you have saved and how much money each holding might generate for your retirement.
A brief breakdown of retirement savings to consider
The State Pension
Start by getting your State Pension forecast from the government website. This will tell you how much you might expect to get, when you can start claiming it, and if it’s possible to increase it.
The full level of the State Pension is £185.15 a week (2022/23 tax year), providing an annual income of £9,627.80.
Check for gaps in your National Insurance contributions (NICs), which, again, you can do on the government website. This will tell you if it’s possible to pay voluntary contributions and make up any gaps you have. This can help boost the amount of State Pension you receive.
Defined benefit or final salary pensions
Retirement income from these pensions is calculated based on your salary and the number of years you’ve been a member of the scheme.
Generally, they’re only public sector or older workplace pension schemes. If you’re a member of one of these schemes, the pension provider will usually send you an annual benefit statement. If you don’t have a recent statement, you can ask for one.
Your statement will show how much pension you might get. Be aware: it may quote an income amount based on you taking your 25% tax-free cash lump sum.
Defined contribution (DC) or money purchase pensions
These are the most common type of pension scheme. While you are working and contributing to this type of pension, you build up a pot of money that you can use for income when you retire.
The value of your pot is based on:
- Your contributions
- Your employer’s contributions (if applicable)
- Investment returns and tax relief.
DC schemes include workplace and personal pensions. Your annual statement will give you an estimate of your future pension fund value, as well as the estimated regular income you’re on track to generate for your retirement.
Other sources of retirement income
Of course, you might have other savings and investments that will provide an income for you in retirement. For example, ISAs, general investment accounts, or property you rent out. You should also be able to get statements for your investments.
Are all your funds invested to provide the potential returns you need?
Once you understand exactly what pensions and investments you have and know how much money they might generate when you retire, you should think about whether they are invested in the right way.
This may all feel like a lot to figure out. There may be too much admin for you to manage when you’re still working full time, and it may be tempting to put it off. But the longer you delay, the less time you have to address any shortfall you may uncover.
We can help you gather all the information you need. With your express permission, we can contact your pension and investment providers on your behalf and chase down the statements you need to get a clear picture of everything you hold.
Once you know what you have and how they are held, we can discuss whether you need to consolidate your pensions and investments to make them easier to keep track of. But, more importantly, we can assess whether the funds you are invested in are suited to your tolerance for risk and appropriate to deliver your desired retirement income.
Get in touch
If you want to consolidate all your pensions and investments and get a clear view of everything you have and what your savings are worth, we can help.
Our team of experienced planners will help you track down everything you have and show you what income your savings will generate when you retire.
Email enquiries@bowmorefp.com or call us on 01275 462 469.
Bowmore Financial Planning Ltd is authorised and regulated by the FCA
