5 ways you can give your pension a bit more love
Like relationships, it’s important to nurture your pension. By Vicky Shaw.
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Your support makes all the difference.Pensions often sit in the background, getting little attention until the time approaches to start dipping into them. But with a bit of care, they can be helped to grow.
Shona Lowe, a financial planning expert at abrdn (abrdn.com), cautions that not giving pensions sufficient focus until retirement “can leave you with less than you need, and not enough time to do something about it”.
Giving your pension a bit of “love” can make all the difference to your lifestyle in retirement, she says.
Lowe adds: “Similar to checking in with your other half and planning your future together, it’s important to set aside time to review your pension, and assess what is and isn’t working.”
Lowe has five suggestions to consider when it comes to pensions.
1. Make sure you’re on the same page
“Gauging whether you’re on track to meet your retirement savings target is key,” says Lowe. “Regardless of your age, it’s important to roughly forecast this and have a plan to work towards.
“Much like a relationship, if you’re not on the same page, things could go off track. Working towards a set goal will make things much more achievable.
“Working backwards, estimate how much you think you’ll need in retirement each year, taking into account that retirement can last 30 years or more.
“Don’t forget that what you have now will change in value, and hopefully grow over time.”
Many pension providers have apps that can make it easier to see if you’re on track to hit your savings goals. These also show how much you could grow your pot by, if you paid in a bit extra each month.
The Pension And Lifetime Savings Association (PLSA, plsa.co.uk) has recently updated its “retirement living standards” – to give people a rough idea of what lifestyle they may have in retirement.
2. Contribute what you can
Rising living costs may make pension saving a struggle right now. But if there are times when you have spare cash, it may be worth making higher pension contributions, perhaps, if you get a pay rise, for example.
If you need to reduce or stop contributions for whatever reason, remember to increase them or start paying in again, as and when you can.
“Your pension is a very tax-efficient way to save for your future, thanks to tax breaks on what is paid in,” says Lowe. “However, the amount of tax relief you get will depend on the rate of income tax you pay, and the type of pension plan you have.”
She adds: “You can normally contribute up to the annual allowance of £40,000, and still benefit from tax relief each year.”
3. Take it slow
“A pension pot’s purpose is to cover you financially in later life,” says Lowe. “You can benefit more from investment growth if you have as much in there as possible.”
She says withdrawing money reduces that pot size “and takes away some of what could grow, particularly if you take money out when investment returns are low.
“It might help to plug a gap in the short term, but you could lose out in the long term.”
4. Consider bringing pots together
Lowe says: “When you have several pension pots, things can become complicated. It can be hard to keep track of how much money you have in each, and what they are likely to pay you in retirement.
“There are an estimated 2.8 million lost pensions in the UK worth around £26.6 billion. So, it is worth considering whether to combine yours into one, to ensure nothing gets forgotten.
“Don’t rush into this, though – you might have valuable benefits in a pension that could be lost if you move out of it.
“To track down a lost pension, you need to know the name of your employer or pension provider. If you don’t have this information, you can use the Government’s online Pension Tracing Service.”
5. Don’t be afraid to get support
Over-50s can get free, impartial guidance from the Pension Wise service.
Some people may also want to consider taking financial advice.
“An adviser can help ensure you have a plan for your financial future, which takes all your goals and plans into account,” says Lowe.