Are your pensions under control?
Important Information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. You cannot normally access money in a SIPP until age 55. This information and our Pathfider tool are not a personal recommendation for any particular investment.
Retirement can be a really exciting time of life – a chance to tick off all those things on your bucket list. Achieving your ambitions and ensuring you’re comfortable in retirement usually requires forward planning though. Roughly speaking, a single person will need about £20,000 a year to achieve a moderate living standard, and £30,000 for a comfortable one1 which means with the full amount of the new state pension of £8,767.20 per year, there’s clearly a gap.
Taking control of your retirement savings is therefore crucial. But it’s not surprising, with so many changing priorities in today’s busy lives, whether that’s children to support, a new home, changing jobs or even setting up your own business, our retirement savings end up taking a back seat.
But it’s really important to get started and make the time to consider how to balance our needs of today with our needs, and desires, for the future. And what better time to make sure your pensions are in good shape than at the start of a new year?
Simply ask yourself the following five questions to see whether you’re in control of your pensions and on track for the future you want.
5 questions to ask yourself
1. Do you know the value of your current pension?
It’s well worth putting some time aside early this New Year to get your pension statements together and check the total value of your pension. This may feel like a hassle, with many of us now having multiple pension pots, and is likely to involve sorting through your paperwork and logging into your online pension accounts. But it’s important to do as your pension may be worth more or less than you think, and establishing what it might provide you in retirement can help you to make sure you’re putting away enough to enjoy the lifestyle you want in future years.
When checking the value of your pension, don’t forget to add in the value of any defined benefit pension schemes you may have. A defined benefit pension pays a retirement income based on your salary and how long you have worked for your employer and are generally only available from public sector or older workplace pension schemes.
2. Are you saving enough?
On its own, knowing how much you have saved in your pension is not enough. You also need to make sure you’re saving enough for the future you want.
Just a 1% difference in contribution could make a significant difference to the size of your pension pot when you come to retire, due to the powerful effect of compounding. This is when you earn interest on top of interest, making your savings grow even faster.
For example, a 30 year-old today earning £30,000 could contribute an extra 1% of their salary and then retire at age 68 with an extra £55,345 in their retirement fund. This example assumes that wages will grow by 3.75% and that the return on invested contributions is 5% after fees2. Read how we made our assumptions here.
Fidelity’s retirement guidelines can help you understand how much you’ll need to enjoy a retirement that meets your expectations, including what’s a potentially sustainable withdrawal rate at retirement. And our planning calculators can help you to look more closely at various aspects of your retirement, from planning your goals and your savings to working out your withdrawals.
3. Are you making the most of pension tax relief?
Tax relief on pension contributions is a valuable benefit that helps boost your retirement savings.
Your contributions to a personal pension get a 20% tax relief uplift from the government, with the potential for more for higher rate tax payers. For example, a £1 contribution today costs you 80p if you’re a basic-rate taxpayer, as little as 60p if you’re a higher-rate taxpayer and 55p if you pay additional-rate tax.
You can receive tax relief on pension contributions up to the amount you’ve earned in any given tax year, up to a maximum £40,000 this tax year.
Taking advantage of tax relief by paying as much as you can afford into your pension through regular contributions, and topping up when you can, for example, a percentage of a company bonus, can really help to boost your retirement savings.
You can find out more about tax relief and pension allowances here.
4. Are you maximising your employer’s contributions?
Today, many employers pledge to match any contributions you choose to make to your pension (up to a certain limit on top of auto enrolment minimums). This is a great way of building up your retirement pot over the years. And, don’t forget, these contributions will normally benefit from tax relief too.
5. Do you know where your pension’s invested?
The investments you choose to hold in your pension will have a significant impact on the performance of your retirement savings over time. Spreading your money across different assets (equities, bonds, commodities, property and cash) helps to balance out the ups and downs of the market over time.
Holding a diverse range of assets in line with your goals and risk tolerance will help minimise the exposure to a single asset class in your portfolio and will help take advantage of opportunities across the market.
To help spread risk, and if you are over-exposed in a particular fund, asset class, company type or region, then you may want to consider making changes to give yourself a more balanced portfolio. Learn more about effective asset allocation.
Having pensions in different places can make it harder to see where your money’s invested and whether you have a good balance of investments. A riskier approach in one pot might be fine if you’re being cautious elsewhere, and it could be each pot looks to have a good spread but when reviewed together it becomes apparent that you’re over exposed in a particular region or asset class - but it’s hard to know that when you have several pots.
One of the best ways to diversify your portfolio is to invest in a multi-asset fund. Fidelity's PathFinder tool can make choosing a multi-asset fund easier for you by presenting two fund options based on your selected risk level. The funds shown to you will be ‘multi-asset’ funds. This means they will actually hold a selection of other funds picked by the Fund Manager, who'll handle the day-to-day management and make changes whenever necessary.
Make life easier by bringing your pensions together
If you’ve built up multiple pensions over your working life, you may be finding it difficult to keep track of your retirement savings. One option is to bring them together in a Self-Invested Personal Pension (SIPP) where you can more easily see what you have, where your money’s invested and how it’s performing. A SIPP offers flexible income options at retirement, and could potentially save you money - with lower fees than you’re currently paying.
If you’re considering transferring a pension and would like more information, or have any questions, Fidelity’s customer service team is on hand to offer you guidance and support. Just call 0800 028 1819. Lines are open Monday to Friday 8am to 6pm and Saturdays 9am to 2pm.
1Pensions and Lifetime Savings Association - UK Retirement Living Standards October 2019
2Fidelity December 2019
Important Information: It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the benefits, charges and features offered. To find out what else you should consider before transferring, please read our transfer factsheet. If you are in any doubt whether a pension transfer is suitable for your circumstances, we strongly recommend that you seek advice from an authorised financial adviser.
Be ready for whatever life may bring
Find out more about the benefits of bringing your pensions together in a Fidelity Self-Invested Personal Pension (SIPP)