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.
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.
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.
This can be found on your payslip, P60 document or letters about tax, pensions or social benefits.
If you have (or have had) a pension that is described below then we can potentially carry-out a Pension HealthCheck.
Defined Contribution Pensions
These are ‘Pot of Money’ pensions where the benefits provided take into account the value of the fund at retirement. They can be personal pensions or Occupational Pensions. There are no guarantees as to what pension will be provided. This will be a reflection of contributions made and investment growth.
Defined Benefit Pensions
These offer the promise of a guaranteed pension at retirement which reflects the length of service with an employer. It will be based on either the Final Salary or Average Career Salary of the employee. Providing the company is still in existence, there is no investment risk for the pension receiver. This type of pension is becoming less frequent.
This is a generic term for pensions that are not workplace schemes.
Group Personal Pensions
Employer-sponsored schemes – each member has a personal pension plan, and their contract is with the pension provider. The employer’s role solely is to select the scheme provider, decide if there should be any restrictions on fund choices and take contributions from the employee’s pay and forward them with employer contributions to the pension provider.
A private pension arrangement or personal pension is taken out by a sole-trader or self-employed worker.
State Earnings Related Pension (formerly Graduated Pension and subsequently State 2nd Pension or S2P) was an additional element of State Pension for employees. The amount of pension was linked to the employee’s salary. SERPS was abolished in 2016 when the flat rate State Pension was introduced.
Private pensions are contracts between the pension member and an insurance company or another pension provider.
These are personal pensions where the member has a much wider choice of investments, including commercial property and single company shares.
Personal Pensions with a set of rules that impose amongst other things a maximum annual management charge (AMC), low minimum contribution levels (£20 per month) and an appropriate Default fund.
Private pension linked to an employer’s Defined Benefit Scheme but separate from the Scheme’s internal Additional Voluntary Contribution (AVC) arrangement – largely defunct since the rules were eased several years ago, allowing people to contribute to both personal and employment schemes as they wish.
Money Purchase Pensions
This is another name for Defined Contribution Pensions.
Unfortunately, we are unable to help clients who currently work for or have a pension from one of the following:
If you are unsure about the type of pension(s) you hold, please contact us on 0800 756 1288 or email firstname.lastname@example.org