Should my pension fund always grow as I pay into it?

The workplace pension is something that many people take for granted. You contribute towards it whenever you are paid, your employer might add their own contributions, and you will also be paying into your state pension. You might even have an additional private pension fund you are paying into. However, this is no guarantee that your pension is growing as you expected it to, especially if you have lost track.

Pension performance is not guaranteed

As with any investment, performance may vary over time and the value of your pension can go down as well as up. The best investment options when you initially set up your personal pension may not be the best options now, and you do not want to get to retirement to find out that your pension fund has grown less than expected and you’re short of money. According to The Guardian, people in their 40s and 50s are most at risk (1) – you can no longer assume that you will automatically get the same, secure pension that you might traditionally have expected. Some private pensions also come with high management fees, which can reduce your pension growth. Our pension calculator is worth a look: the difference between a 0.5% and 3% annual charge can add up to tens of thousands of pounds, depending on your fund value and age.

Another potential pitfall is inadequate retirement planning. In a defined contribution pension policy, your final pension fund value is based on how much has been paid in. Yet many people, particularly in the younger generation, simply aren’t paying in enough. In many ways, this is understandable: commitments like buying your first home and raising a family all cost money and might tempt you into paying in the bare minimum. However, the state pension alone – adding up to about £8,500 a year – is probably not enough pension income.

How to improve pension performance

Spending some time thinking seriously about your retirement planning is the first step. There are some very simple steps you can take to improve your fund performance. For example, increasing your pension contribution (how much you are investing into your pension regularly) even by a small amount per month can add up to a large increase in your overall pension fund. The power of compound interest (the interest added to your original total) means that contributing just 1% extra of your salary from age 40 could boost your final pension pot by a third according to the calculations from This Is Money (2).

Other steps are a little more complicated, and an Independent Financial Adviser is the best person to speak to regarding your pension fund to make sure you are getting the best deal and not losing out. They could be able to help you find ways to reduce fees, which may involve a pension transfer moving your private pension to a different provider) or pension consolidation (putting all your smaller pensions from different employers into a single pension pot). They may be able to find a better-performing pension fund for you. Remember, a Financial Conduct Authority-regulated financial adviser works for you – they don’t recommend changes just for the sake of it, and if your private pension is performing well and meets your needs, they will most likely advise you to stick with it.

Reduce the chances of losing thousands of pounds from your pension savings, get free, impartial advice on ways to boost your pension from Pension Works. Contact us today on 0808 164 2664 or, to find out more about Pension Works, click here.