Pension Awareness – 5 questions you need to consider

Recent reports from the IFS have warned that the state pension age will hit 70 years old by 2050.

This comes as a result of the shockwaves sent through the pensions market following the Covid-19 pandemic and subsequent economic crisis. Anyone between the age of 45 and 70 are being urged to check their pension pots and to review their retirement strategy, amid the prediction that almost 75% of people nearing retirement age could see funds running out by the time their reach their mid-80’s.

We’ve put together 5 important questions you should consider to help you stay in control of your retirement and maximise your savings.

1) How much will I need to save?

As a rule of thumb most advisers recommend saving up 10 times your average working-life salary in order to be secure during retirement.

The amount to save will of course be different for each person – the first place to start is with your personal working situation: are you employed, or a business owner? Considerations for business owners can be quite different.

As a business owner tax planning needs to form a part of the overall financial strategy and will help you see the full picture and value you have built up in the business over time. It also impacts the pensions you may wish to offer your employees.

In addition, we can’t forget that pension contributions are one of the few remaining tax breaks available to limited companies. This means that your pension contributions are a tax-efficient way of using business profits as well as a way to save for retirement.

Whether an employee or business owner though, the amount you need to save ultimately comes down to planning for your lifestyle in the ‘third age.’ Looking at different categories of expenditure will be key, things such as a mortgage (or perhaps this has been paid off), utilities, planned vacations and potential large expenditures such as home renovations.

If you don’t have access to a financial advisor, tools such as the Money Helper Pension Calculator, or looking into Retirement Living Standards will help you to form a clear guide as to what you will need as you enter into your journey of retirement.

2) How much State Pension am I entitled to?

 Again, this will depend on your own personal and working circumstance, as you will be entitled to a state pension, but need to qualify for this in order to receive it.

This is an important factor to consider when planning for retirement. You need to make sure that you have made 10+ qualifying years of National Insurance contributions. To receive the full state pension amount you need to have made 35 qualifying years.

Make sure you get a State Pension forecast to help you check eligibility and what you are on track to receive.

3) How much am I paying into my pension pot?

As a PAYE member of staff, how often have you begun a new job and know you are paying into a pension, but cannot remember how much you are paying in vs. what your employers pays? Don’t worry – this is a very common situation!

The likelihood is that you are paying in what is called a ‘defined contribution,’ meaning that you pay an amount in, your employer pays an amount in, and the total amount within your pot is then dependent on the total funds you have contributed, alongside how these investments have performed.

Typically you will pay a minimum of 8% of your salary, which is made up from 5% contribution from you, and a 3% contribution from your employer. The key is to get as much into this pot as possible.

Ask yourself if you can afford to spare a little more? Does your employer match your contribution, or double it? As is the case for some.

Equally, if you are someone who is paying into a private pension fund, when was the last time you reviewed your contributions? How much you put into a private pension is a personal choice, but it’s important to stay on top of this to accommodate for fluctuations in both your income and market conditions. Most advisors will tell you that a ‘good’ contributions figure is calculated by ‘taking your age and halving it,’ then take this figure as the saving percentage to apply your pre-tax income.

Whatever your situation, make sure you understand your pension contribution options and what you are paying in now so you can top it up if you need to.

4) I’m pretty sure I’ve forgotten about a pension I have – how can I find it?

 Don’t be embarrassed – we’ve all been there. In fact, did you know that reports from The Association of British Insurers show that there’s £26 billion in lost pensions still to be claimed?

So where do you start? Firstly, do you get your annual statement? Check your files and folders for any older statements to recover your information. Having just the name of the pension provider is enough to get in touch and recover a forgotten pension pot.

Another way to track down the information is to contact your employer/former employer to ask them, as they can provide you the name of the provider.

If this is a no go, you can take a look at the ‘Find pension contact details’ on the Government website or look at the Pension Tracking Service – both are totally free and allow you to easily look up the pension provider details of your former employers.

It may seem like a painful task, but ensuring you have access to all your pension pots can mean a significant difference in your overall savings, come retirement. It can also be an excellent opportunity to consolidate your existing pensions to gain better insight into your overall retirement pot.

5) Am I investing in the right pension funds?

No matter our level within an organisation, many of us will (at some point) have enrolled into an automatic pension scheme and that’s the last we really hear of it. The reality is that you have numerous investment options and should make sure that you are aware of these.

For some, a ‘one size fits all approach’ is easy and lower risk. For others, taking out a private pension alongside/instead of an employer pension fund is favourable. The point is, you don’t have to stick with your workplace’s default investment option – take a look around and make sure you have reviewed your options.

For business owners, seeking advice from a financial advisor is key to understanding the impact of these savings within your retirement and overall business strategy. Other ways to explore pension funds is to contact your pension provider or employer directly.

Get in touch

With so many things to consider, getting your retirement strategy right is crucial, particularly during these uncertain times. Get in touch to find out how our team of experts can help you to safeguard your future post-retirement.