Pay your pension some attention: how prepared are you for retirement?

Many of us are already saving for our futures by paying into a pension. After all, if you’re employed by a company, then it’s likely that you’ve been automatically enrolled into a pension scheme.

But how often do you actually think about your pension?

Are you on top of all the pots you’ve paid into over the years, and do you know how to access them? Do you have a rough idea of how much you’ve put in so far?

And do you know roughly how much you’ll need to live in retirement?

With the cost of living crisis dominating the news, you might feel like there’s not a lot you can do to improve your future finances right now.

However, paying more into your pension while you’re young isn’t your only option if you want to give your finances a boost in retirement. Instead, it might be worth considering if you could get more out of your pensions in future by making changes to any existing ones you have now. At the end of the day, these already contain the hard-earned cash you’ve put aside for this very purpose.

Even if it seems a little soon, working out how much you might end up with, who your pensions are with and how much you’re being charged for them could help to bring you a step closer to achieving a comfortable retirement (or a more luxurious one, depending on what you fancy).

Plus, consolidating all your pots into one shiny new pension could make it easier to see how much you have saved and access your savings when you’re ready to retire.

With that in mind, here are some simple ways to pay your pension(s) some attention.

1. Check if you’re eligible for the State Pension

If you want to get clued up on the money that will be available to you in retirement, then getting acquainted with the State Pension could be a good place to start. This is because even if you’ve never paid into a workplace pension scheme for any reason (for example, because you’ve always been self-employed), you might still be eligible for it.

So, how does it work? Well, the ‘new’ State Pension (which replaced the original State Pension back in 2016) is funded by the government and will pay you a weekly amount to live on when you reach a certain age. This isn’t set in stone and will depend on when you were born.

To help you plan ahead, here’s where you can check your State Pension age.

As of the current tax year, the full amount you’ll get from the new State Pension is £185.15 a week.¹

However, before you get too excited about the prospect of having some extra cash when you retire, you might want to check that you’ll actually be eligible for it. You’ll need to have 10 years’ worth of National Insurance contributions on your record to get any State Pension, and 35 years’ worth to be entitled to the full amount.

If you’re unable to work (and therefore aren’t paying contributions), then you might be able to get National Insurance credits instead – and if you do have any gaps in your record that you’d like to fill, then you may be able to pay voluntary contributions.

If you’re unsure of how many years you have on your record, you can check your National Insurance record on the GOV website.

2. Work out how much you could need to retire

With the costs of goods and services seemingly going up every week due to soaring inflation, it can be hard to predict how much you’ll need to live on when you retire.

Sadly, none of us have a crystal ball to give us a head’s up about what to expect in the future.

If you don’t know where to start when it comes to calculating this, two resources you might want to check out are the Retirement Living Standards, which were developed by the Pensions and Lifetime Savings Association (PLSA), and a recent Which? survey of over 1,000 retirees in the UK.

Both of these resources give estimates on how much money you could need each year depending on your dream type of retirement – so, whether you just want to be able to live comfortably or be able to enjoy luxuries like a yearly holiday abroad, extra cash to spend on clothing and leisurely activities, and the ability to make improvements to your home, they could be a pretty good starting point.

Our own pension calculator also takes into account factors such as the age you want to retire, the value of your existing pension pots, and how much you plan to keep paying in to help you work how much you might need based on your current salary or a target you’ve set yourself.

You could even base this target on the Pension and Lifetime Savings Association and Which? estimates if you really wanted to.

However, one thing to keep in mind is that you might have already bought a home and paid off your mortgage by the time it came to retire.

But with it getting harder to take your first step on the property ladder, many people are becoming homeowners later in life and are opting for longer mortgages, or they might simply never stop renting and never buy a property. So, depending on your situation, you may need to factor these costs into your calculations.

3. Track down your existing pensions

These days, most people will be automatically enrolled into a workplace pension scheme when they start working for a new company – this has been the case since 2012.²

Yep, that’s right – pension auto-enrolment has been in place for 10 years already.

That’s a long time to have collected different pension pots, and with it now being the norm to switch jobs a number of times throughout your career, it could mean that you have several pensions lying around that you may have forgotten about.

Now, tracking down your pensions might seem like a hassle, but knowing what provider they’re with and how much you have saved in them could make your life easier when it comes to retiring and accessing the money when you need it. In fact, it’s been estimated that there’s more than £19 billion tucked away in lost pensions – and this is just in the UK alone.³

Typically, the information you’ll need to access your pension is the name of the provider and your policy number. So, here are some tips to help you find those pesky pension pots:

• First thing’s first: check your email inbox and start rifling through that draw you keep all your letters in and are forever putting off organising. You never know, you may be able to find an old statement you’ve forgotten about with the information you need.
• If you have your old employer’s contact details, you may want to get in touch with them and ask them who your pension was with – they should have a record of this. You can then reach out to the provider directly to find your policy number.
• If your old employer is no longer trading, putting their name into the Government’s Pension Tracing Service could help you to find out which pension provider they used.

And if you really don’t have a clue about any of the details and can’t find any statements, then why not check out our handy guide to finding a lost pension for more guidance?

4. Transfer your pensions into one pot

Once you know where your existing pensions are, one thing to consider is whether you could benefit from transferring them into one pot (a process called pension consolidation).

But if you did the hard work of finding your pensions and are able to check in on how your money is doing, then why would you want to go through the trouble of combining them into a new pension? Isn’t this more hassle?

Well, there are actually a few good reasons why you might want to consider doing this. Firstly, most providers will charge you a fee to manage your pension for you, so you might be to save money by transferring them to a new provider that charges lower fees than what you’re currently paying.

Plus, if you have old workplace pensions you no longer pay into, transferring them into a Personal Pension (like Wealthify’s) will allow you to keep paying in and topping up your savings pot.

And the best thing is, unlike a workplace pension that you have to pay at least 5% of your salary into each month, you can choose how much you pay in and how often – so if there is a month where you’ve spent more than expected, you don’t have to worry about more money automatically coming out of your bank or paycheck before it even reaches you.

With Wealthify, you can also choose for your money to be invested in ethical businesses.

However, before you transfer, it could be a good idea to check if you’ll incur any existing fees from your current provider. Or, if you have any defined benefits attached to your pension (which would be the case with a final salary pension).

In many cases, you’ll be better off keeping those pensions where they are, but the provider you’re hoping to transfer it to should flag this for you.

5. Determine if you could up your contributions

In the midst of a cost-of-living crisis, saving more into a pension is likely to be low on your priority list – especially as the money in your workplace and personal pensions can’t be accessed until you’re 55 (or 57 from the year 2028). But if you can afford to save small amounts now, then it may be worth upping the contributions in your workplace pension to give your money more potential to grow.

And if you want more flexibility over the types of businesses you invest in, another option is a Personal Pension (such as the one Wealthify offers). You could open one even if you already have a workplace pension in place, and you can pay into them both.

With a Personal Pension (also known as a ‘SIPP’), you’ll get an instant 25% tax relief top up as a basic rate taxpayer – meaning that every 800 you put in is worth £1,000. With a Wealthify Pension, we’ll take care of calculating this and automatically adding it to your investment.

And if you do want to put more money away for your future, small amounts can make all the difference. As an example, if you start paying £50 a month into a Wealthy Pension at age 30, you could have £34,176 in when you’re 57.⁴ And if you up this contribution by just £10 each month, you could end up with £41,011 instead.⁵

At Wealthify, we believe that everyone should have a chance to achieve their perfect retirement – no matter what it looks like. So, we hope these steps will help you feel more confident about your future and give you the foundations to start putting your dream retirement into action.

With investing your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.

Pension calculators only provide forecasts and not a reliable indicator of future performance.

Wealthify does not offer advice, if you’re not sure whether investing is right for you, then please speak to a financial adviser.

1. https://www.gov.uk/new-state-pension/your-national-insurance-record-and-your-state-pension
2. https://www.moneyhelper.org.uk/en/pensions-and-retirement/auto-enrolment/automatic-enrolment-an-introduction
3. https://www.abi.org.uk/news/news-articles/2020/05/19.4-billion-of-pension-pots-unclaimed-just-because-of-house-moves/
4. This is the projected value for a Confident Plan (Medium Risk Plan) with an Original theme and includes tax relief. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £24,872. If markets perform better, your return could be £49,299. Values correct as of 07/09/2022
5. This is the projected value for a Confident Plan (Medium Risk Plan) with an Original theme and includes tax relief. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £29,846. If markets perform better, your return could be £59,159. Values correct as of 07/09/2022