How much do you know about your pension?

According to research from the Financial Conduct Authority (FCA), many UK adults have a lack of knowledge surrounding their retirement savings and income.

The results show that awareness and engagement with pensions increased with age, as over-55s are more in touch with their retirement finances than younger people. However, in three key areas of financial planning for later life, there are still gaps to be filled:

1. Reviewing pensions

Regular pension reviews help you to stay on top of your retirement planning however, the research shows that many people rarely review their pensions, creating a dangerous gap in their knowledge:

  • 53% have not reviewed their pension in the past year
  • A third do not know how much their pension fund is currently worth, including 26% of over-55s
  • 45% will not give their pension much thought until they are two years away from retiring, due to a lack of spare time
  • 56% of 35-44-year olds and 48% of 45-54-year olds have not checked how much their retirement fund is worth within the past year
  • 71% don’t know if they incur charges on their pension, including 61% of 45-55-year olds
  • 34% of people have little or no trust in their defined contribution provider#

2. Retirement planning

In the years leading up to finishing work, it is important to plan carefully for your retirement. However, the research shows that many people are vastly unprepared, with no information, savings or plans in place:

  • 81% of people have not considered how much they need to pay in now, to produce a liveable income later
  • 31% have no pension scheme and will only have their State Pension to live on
  • Less than one fifth (18%) of 35-44-year olds have thought about their retirement finances
  • Almost a quarter (24%) of those aged 55 and over and still working would rather focus on today than plan for their retirement
  • 49% did not choose where their contributions were invested when they joined/set up their defined contributions pension
  • Just 16% had a say in where their contributions are invested and more than one fifth (22%) willingly opted into the default fund
  • 14% do not know if they decided where to invest their contributions

3. Accessing pensions

When your working years are finally over, and the time comes to rely on your pension for an income, its vital to understand the options facing you, as well as the advantages and disadvantages of each. Creating a sustainable income, that will last for the rest of your life, is of paramount importance. Additionally, if you want to leave a legacy, that will also require forethought and planning. However, the research shows, that many people are misguided about their retirement plan:

  • 25% of people who get an income or have taken a cash lump sum from their defined contribution pension are not sure how it works
  • Just 46% took their life expectancy and health into consideration when deciding how to access their retirement income
  • 11% think that the value of their retirement fund can go up or down once it has been accessed

Despite this lack of information and engagement with pensions; even among those who are already depending on it for an income, it’s not all bad news. 59% do know that a single-life Annuity will give them a guaranteed income for life, proving that all is not lost.

Why does it matter?

Understanding your pensions and the options facing you before and during retirement means that you can make better decisions. Without knowing the facts, you may make decisions based on incorrect information. With some retirement and pension choices being completely irreversible, most people cannot afford to make mistakes at this time.

Pension planning is easier if you start thinking about it earlier. Having longer to save means that you can make more contributions and even increase your contributions as your lifestyle and budget allows. Starting to save for retirement early also means that you can put more away, including topping up your emergency fund and being better prepared for whatever costs life has in store for you when you stop working.

What should you do now?

Talking to a financial adviser is the best way to gain an understanding of your finances. An adviser can determine your current situation, including your pensions, current contribution levels and spending habits. They can then use this information to predict how much you will have in retirement income if you continue in the same vein. However, they will also take note of your aspirations and goals for retirement and suggest ways in which you can change your current habits to turn them from dreams to reality.

To discuss your retirement planning and income in more detail, get in touch with Ben on 0113 262 1242.