Spring clean your pension plans
Around this time of year, as the days get longer and (hopefully!) warmer and sunnier, we start thinking about spring cleaning. And one area that most people could do with tackling is their pension.
Most of us, if we have a private pension, set it up then forget about it. Even if we are regularly paying into it, research shows that we rarely check it – despite best practice indicating that it is good to review them at least once a year.
Search for lost pensions
So, if you are going to spring clean your pension plans, what should you do? Your first step should be to check you are aware of all your pensions. It may be that previous employers started a pension for you, and you paid into, that you have forgotten about. You can use the government’s free pension tracing service to see if you have any lost pensions.
According to the Association of British Insurers, there is over £30 billion lying in unclaimed, lost or forgotten pension pots in the UK. That’s equivalent to £9,500 per person who has misplaced a pension. Who knows, you might uncover a mini windfall for yourself in the form of a forgotten pension pot.
Check your pension is in the best place
When you have a full picture of your pensions, and the amount in each, you can then check whether they are in the best place. Look at the performance of each pension, and what fees you are paying.
You may decide to consolidate your defined contribution pensions into one. If so, find a provider (it may be one of your existing providers, or a new one entirely) with a good performance track record and reasonable fees.
Charges vary between pension providers, and the more you have invested in your pension, the greater the difference moving your pension to a provider with a lower fee can make.
For example, if you have £50,000 invested, here’s what you’d pay each year with different fees:
- 0.3%: £150 a year
- 0.5%: £250 a year
- 0.75%: £375 a year
And if you had £200,000 invested, your fees would look like this:
- 0.3%: £600 a year
- 0.5%: £1,000 a year
- 0.75%: £1,500 a year
As you can see, moving a £200,000 pension fund from a provider charging 0.75% to one charging 0.3% could save you £900 a year.
Before you move any pension though, check for exit fees or benefits you might lose.
Make sure you are on track for your retirement goals
Your final step should be to check that you are on track to reach your retirement goals. To do this you need to know:
- When you want to retire
- How much is currently invested in your pension
- What other savings/assets you have
- How much State Pension you will receive
- What your projected monthly outgoings might be
- What kind of lifestyle you want when you retire
With this information you can use pension forecasting tools to check that your current pension contributions are enough.
If you find there is a shortfall, you have a number of options, including:
- Delay your proposed retirement date
- Increase your pension contributions
- Change your pension investment strategy
If you are self-employed or run a limited company, the good news is that you can save money on tax by investing in your pension. You can read the four benefits of investing business profits in a pension here.
Don’t leave your retirement to luck
Every year that passes without you reviewing your pension is a missed opportunity to maximise growth and ensure you are on track for the retirement you are hoping for. So, this spring, take the opportunity to review your pension, and make any changes needed. Then set a reminder in your calendar to do the same next year. Your future you will thank you for it!
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