If you work for somebody else, there’s a good chance that your employer has signed you up to a workplace pension scheme.
“Automatic enrolment” of eligible workers into pension schemes has been gradually phased in since 2012 and now all employers must offer this to anyone who meets the criteria.
If you’re not sure whether you have a workplace pension, it’s worth checking with your employer.
If you know that you’re enrolled in a pension scheme, but you’ve never checked the policy details, you’re not alone. According to research by Aviva, millions of people aged between 32 and 40 who were auto-enrolled into a workplace pension are “triple defaulters” and have never updated their contributions, investment choices, or target retirement age.
Making even small changes to a default pension fund could help you tailor investments to meet your individual needs.
Read on to find out why it might be worth checking your pension now to assess whether the default option aligns with your long-term plans.
Why you might want to reconsider your default pension funds
When you start a new job, you will probably be enrolled into the employer’s default pension scheme unless you expressly request not to be.
Employers have a continuous responsibility to ensure that the pension scheme they offer is appropriate for their workforce, including monitoring the ages and earnings of staff. However, default schemes are created with the average employee in mind.
A default fund frees you from the responsibility of managing your pension and ensures that your contributions are invested from your first day of employment. But sticking with the default options also means that your pension fund is not tailored to suit your individual needs.
Furthermore, many default funds are based on a lifestyling strategy. This means that your pension savings will gradually switch into lower-risk funds as you get closer to retirement age.
This could help to protect your pension pot from any sudden falls in the stock market as you near retirement. Yet, since many people now enjoy lengthy retirements of 20, 30 or even 40 years, pension lifestyling may mean that you miss out on years of potential growth during later life.
Instead of accepting the default level of contributions, investment choices, and retirement age, you can choose which fund you’d like to use for your pension savings and update your retirement age with your workplace pension provider.
4 reasons to check your pension now
1. Understand and explore your options
Understanding your current financial situation and exploring alternative savings options could help you make robust financial plans that align with your retirement goals.
By carefully monitoring your finances you’ll be better placed to keep your plans on track and quickly take action if your circumstances or goals change.
Research from Standard Life has revealed that 75% of UK adults don’t know how much is in their pension pot. Yet, keeping on top of your savings is relatively easy and could help you assess whether your current contribution level is likely to provide the retirement lifestyle you want.
If you’re a member of a defined contribution (DC) pension, the provider must send an annual statement. This should include details such as:
- Your current pension pot balance
- How much you and your employer pay into the scheme each year
- An estimate of the retirement income or lump sum your pension pot is likely to generate.
Armed with this information, you could assess how well your current pension aligns with your retirement goals and explore alternative options. Speaking to a financial planner might help you review your finances objectively and better understand the different pension schemes available.
2. Avoid the “retirement blind spot”
Without a clear financial plan in place for retirement you risk running out of money in later life.
Yet, according to research published in IFA Magazine, more than a third of retirees retired without checking they could afford to do so.
Getting caught in this “retirement blind spot” could potentially lead to stress, financial difficulties and feeling forced to make decisions you’d prefer not to, such as downsizing or returning to work.
Even if your pension is only one of your retirement income streams, keeping tabs on it and accounting for factors such as life expectancy could ensure that you have realistic expectations about your retirement lifestyle.
You could also adapt your savings and investments to better align with your retirement plans.
3. Consider increasing your contributions
By understanding what your current default settings mean for your retirement and continually tracking your finances, you could be better placed to set short-, medium- and long-term financial goals.
If your default pension is unlikely to give you the retirement income or lump sum you want, you might want to consider increasing your pension contributions.
Paying extra into your pension pot may offer a more tax-efficient way to save long term than topping up your cash savings.
The government offers generous tax relief on pension contributions. Your Annual Allowance allows you to enjoy tax relief on contributions up to 100% of your salary or £60,000, whichever is lower (2023/24).
Plus, if you decide to increase your contributions, you may find that your employer will increase the amount they pay into your pension too.
4. Boost your financial confidence and wellbeing
Understanding your financial position and improving your financial literacy could provide a welcome boost to your confidence and wellbeing.
And, having a solid financial plan in place for later life may offer valuable peace of mind.
By working with a financial planner, you could increase your financial knowledge and build greater confidence in your money management skills. Together, you could review your current pension schemes and explore alternative options that might better suit your needs and long-term goals.
Get in touch
If you’d like to learn more about managing your pensions or would like to discuss your retirement plan, we’d love to hear from you.
Please email us at email@example.com or call 0345 505 3500.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.