If you're still a way off retirement, planning how you'll fund it might not feel like a priority amid a sharp rise in the cost of living.
But taking simple steps now can help set you up for a brighter financial future. Here are six things to check this year to help your pension savings stay on track.
1. Can I afford to increase contributions?
With budgets under increasing strain it might be tempting to reduce the amount you pay into your pension, or even stop contributing altogether.
But this means turning down extra money from the government. Thanks to pension tax relief, when you pay into a pension money you would have paid in tax on your earnings goes towards your retirement savings instead.
If you're in a defined contribution workplace pension, there's a minimum contribution requirement of 8%. This is made up of 5% from you (including 1% pension tax relief) and 3% from your employer.
Cutting your contributions to less than the auto-enrolment minimum of 5% could mean forfeiting your employer's contributions altogether.
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.
2. How much state pension am I entitled to?
The state pension will rise by a record 10.1% in April 2023. This will take the full level of new state pension to £203.85 a week, while the full basic state pension will go up to £156.20 a week.
The exact amount you get will depend on your National Insurance record. 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 can top up your record by making Voluntary 'Class 3' NICs. The cost of filling gaps from the 2022-23 tax year is £15.85 a week.
The current state pension age is 66 but this will rise again to 67 by 2028. The latest government review of the state pension age will be published in early 2023.
You can get a state pension forecast to see if you are on track to receive a full state pension.
3. How much will I need in retirement?
To make sure you're on course for the retirement you want, you'll need to have a rough idea of how much you need.
Our 2022 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 £28,000 when including more spending on leisure activities, and up to £45,000 a year after tax to incorporate long-haul holidays and a regular new car.
For people living alone, those figures are £12,000, £19,000 or £31,000.
To produce the 'comfortable' retirement target of £28,000 a year, couples relying on income from a defined contribution pension (plus the state pension) would need a pot of around £145,000 if opting for pension drawdown (assuming growth of 3% a year).
4. Is my information up to date?
It's easy to lose track of your pensions or for information to become out of date. The Pensions Policy Institute estimates that three million pension pots amounting to £26 billion in savings have become separated from their owners.
Check that the details your pension provider(s) hold about you are correct by logging into your online account or checking your latest paper statement.
The government's free Pension Tracing Service has a register of all workplace schemes. This will give you the name and contact details of the provider of an 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. This is important because defined contribution pensions are not part of your estate, so aren't covered by your will.
5. Where is my money invested?
If environmental concerns are important to you, consider where your pension money is held. Personal pension wealth amounts to around £2.7 trillion.
Pension savers can effect change by ensuring that their pension is ethically and sustainably invested.
Doing this is 21 times more effective than giving up meat, giving up flying and changing energy provider, according to research by the Make My Money Matter campaign.
With a personal pension, there’s a default investment fund for those who don’t want to choose, otherwise you’ll be able to pick from a range of funds, including ethical and sustainable funds.
With most workplace pensions, a board of trustees decides on the fund range available to members, with the help of professional investment advisers, and you’ll need to persuade the board to change strategy to encompass environmental issues.
6. Am I being targeted by a scammer?
Research from Fidelity recently indicated that 70% of UK adults have noticed an increase in the volume of financial scams received over the past six months.
There's no doubt pension scammers will be redoubling their efforts in 2023, so make sure you look out for the following warning signs:
- Unprompted 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, and the FCA warning list of known scam firms.
- Offers to release cash from your pension before you reach 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.
source https://www.which.co.uk/news/article/6-questions-to-ask-about-your-pension-in-2023-aBOi74n8rzxT