Amid more immediate concerns about the rising cost of living, planning how you’ll fund your retirement might not feel like a priority. But taking simple steps to keep your savings on track now can really pay off in the long run.
Here are six things you can do in the new year to revitalise your pensions and make sure you’re on track for the lifestyle you want when you stop working.
1. Review your contributions
More than a quarter of people (26%) don’t know how much they and their employer contribute to their pension, according to research by Hargreaves Lansdown.
You should check to see how much is going into your pension and then increase contributions if you can afford it – for example, if you’ve recently had a pay rise. You can also pay in a lump sum.
If you’re in a defined contribution workplace pension, there are minimum contributions you and your employer must pay. Total minimum contributions stand at 8%; with a minimum of 5% paid by you and 3% by your employer.
These contributions are calculated based on your ‘qualifying earnings’, which are set between £6,240 and £50,000 a year.
Some employers match your contributions, so if you can increase them, even just by 1%, it could make a big difference to your pot in the long run – especially if you start early.
Don’t forget that the government boosts your pension contributions via pension tax relief. This means that money you would have paid in tax on your earnings goes towards your retirement savings instead.
2. Make sure your information is up to date
This may seem obvious, but it is easy to lose track of your pensions or for information to become out of date.
Check that the details your pension provider(s) hold about you is correct by logging into your online account or checking your latest paper statement.
If you’ve lost track of a pension you had with a previous employer, you can use the government’s Pension Tracing Service, which has a register of all workplace schemes. This will give you the name and contact details of the provider of your employer’s scheme, so you can contact them directly.
Also make sure you’ve completed a nomination of beneficiary form indicating who should get your pension when you die. It’s important because defined contribution pensions are not part of your estate, so aren’t covered by your will.
3. Find out if you’re on target
To make sure you’re on track for the retirement you want, you’ll need to have a rough idea of how much you need.
Our research suggests that couples need an average income of £18,000 a year to cover spending on essentials, such as groceries and bills. The figure rises to £26,000 when including more spending on leisure activities, and up to £41,000 a year after tax to incorporate long-haul holidays and a regular new car.
For people living alone, those figures are £13,000, £19,000 or £31,000.
To produce the ‘comfortable’ retirement target of £26,000 a year, couples relying on income from a defined contribution pension (plus the state pension) would need a pot of around £155,000 if opting for pension drawdown (assuming growth of 3% a year).
- Find out more: Use our pension calculator to get an idea of how much you might end up with in retirement.
4. Check your state pension entitlement
The current state pension age is 66 but this will rise again to 67 before the end of the decade.
You can get a state pension forecast to see if you are on track to receive a full state pension.
The current full level of new state pension is £179.60 a week, rising to £185.15 from April 2022. The full basic state pension is currently £137.60 a week increasing to £141.85 a week in April.
You need 35 years’ worth of National Insurance contributions (NICs) to get the full state pension and 10 years to get anything at all.
If there were years where you didn’t get enough National Insurance credits to give you a ‘qualifying year’, you may find you have a gap on your National Insurance record.
You can top up your record by making Voluntary ‘Class 3’ NICs. The cost of filling gaps from the 2021-22 tax year is £15.40 a week.
You don’t have to start taking the state pension as soon as you reach the qualifying age – you can delay payments in return for a slightly higher amount.
- Find out more: is it worth topping up my state pension?
5. Get help if you need it
If you are struggling to understand your pension options, think about speaking to an independent financial adviser (IFA) to help you maximise your retirement income.
IFAs are authorised to give advice and recommend suitable pension products and investment options. Many advisers will offer ongoing reviews to ensure your finances stay on track for and throughout retirement.
If you can’t afford financial advice or don’t want to pay for it, you can also get impartial assistance from Pension Wise. It is part of the Money and Pensions Service (MaPS) and offers free government-backed pension guidance service available to over-50s.
6. Protect yourself from scammers
Being proactive when it comes to your pensions is normally a good thing. However, it can leave you more exposed to scammers and fraudsters in certain circumstances.
Figures from Action Fraud in 2021 showed that victims of pension scams lose £50,000 on average – this will be a life-changing loss for most savers.
These are the key warning signs to look out for if you are talking to someone about your retirement planning:
Offers of a free pension review – Be wary if you’re contacted out of the blue. Reputable advisers won’t do this, and it’s often the first step in trying to persuade you to make a poor ‘investment.
Time-limited offers – Don’t be pressured into making a hasty decision and research a firm before dealing with them. Check the FCA register of regulated companies (fca.org.uk/register), and the FCA warning list of known scam firms (fca.org.uk/scamsmart/ warning-list).
Offers to release cash from your pension before age 55 – Not only could you lose some or all of your pot to scammers, but early access incurs a hefty tax penalty from HMRC.
Investments promising guaranteed high returns – Don’t let the temptation to boost your pension steer you towards unusual investments which are unregulated and high risk.
Watch the video below to find out more about how to spot a pension scam.