8 tips for a healthy pension

With average life expectancy1 for women in the UK at 82.9, and men not far behind at 79.2, you’d think the majority of us are putting a lot of thought into how best to feather our future pension nest. Research, however, would suggest otherwise.

According to a report by the Financial Conduct Authority2, three-quarters of us haven’t considered how we’ll manage financially in retirement, 53% of us haven’t checked the value of our pots in the past year, and 71% don’t know the charges we’re currently paying.

To derive an income that at least equals the current full state pension of £8,546, pension savings of around £255,000 would be required to buy an annuity3 ?. And if you chose drawdown ?, based on Fidelity’s retirement savings guidelines4, you’d need around £175,000 for an equivalent state pension income5.

Based on this, it’s clear to see why people underestimate the challenge of securing an income from a private pension. Our eight pension tips have been designed to test out the well-being of your retirement savings and ensure your pension is in good shape for the future you want.

8 tips for a healthy pension

  1. Maximise 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.

  2. Make the most of pension tax relief

    Tax relief on pension contributions is a valuable benefit that helps lift your retirement savings. Your contributions to a personal pension get a 20% tax relief boost from the government, with the potential for more for higher rate tax payers.

    You can receive tax relief on up to 100% of your earnings in a tax year (up to a maximum of £40,000), known as the annual allowance. It may be possible to pay in more and still benefit from tax relief if you have unused allowance from the previous three tax years and the amount contributed doesn’t exceed your earnings. However, those with taxable income of £150,000 or more may have a reduced allowance. Find out more about pension allowances.

  3. Check you’re not paying too much in charges

    Cost is one of the few elements of investing that you can control through your choice of pension provider. A seemingly small difference in charges can add up to a big difference by the time you come to retire.

    There is typically a service fee, usually a percentage of the money you have invested, payable to your pension provider to cover the administration of your contributions. In addition, you’ll pay a separate fund management charge for each of the fund providers you invest your money with. Different pension providers may charge different amounts for the same fund because they can sometimes negotiate discounts which they pass on to customers. So, when comparing service fees, you need to compare fund charges too.

  4. Make investing regularly work for you

    As a natural part of your investment journey, there will be periods when stock markets go down as well as up. Investing in the dips means buying at a lower price, which brings down the average price you have paid across the life of the investment. Think of it like shopping for a product you know you like in the sales. In financial terms, this is known as ‘pound-cost averaging’.

    Trying to time the market is something even the pros treat with caution. So, investing regular amounts every month helps take the guess work out of it, by helping you catch the high points as well as the low, smoothing your returns over the long term.

  5. Bring your pensions together

    If you’ve built up several pensions over your working life, you may be finding it difficult to keep on top of your retirement savings. Many people find it easier to consolidate their pensions in one place, and one way to do this is to transfer them into a Fidelity Self-Invested Personal Pension (SIPP). Not only will you be able to more easily see how much you have, where your money’s invested and how it’s performing, but it could potentially be cheaper - with lower fees than you’re currently paying.

    Fidelity is currently offering  £20 to £1,000 cashback if you apply to transfer your pensions by 7 June 2019. Exclusions and T&Cs apply. Find out more about the cashback offer and bringing your pensions together.

  6. Don’t put all your eggs in one basket

    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. 

    It’s therefore important to have a well-diversified portfolio to help spread risk and if you are over-exposed in a particular fund, asset class or region, then you may want to consider making changes to give yourself a more balanced portfolio. Learn more about effective asset allocation.

  7. Make sure your investments reflect your attitude to risk

    Knowing the level of risk you’re comfortable with is crucial when choosing investments for your pension. Risk is about balancing out the chances of loss with the benefits of potential higher returns over time.

    Often younger investors will accept more risk in their portfolios because their investments have time to recover should they fall in value. Older investors may not want to take as much risk, as preserving the value of their pension pot becomes a priority closer to retirement.

    One of the best ways to diversify your portfolio is to invest in a ready-made multi-asset fund. Fidelity’s PathFinder can propose two fund options based on your selected risk level, with each fund investing mainly in a well-diversified range of funds - effectively giving you an ‘instant' fund portfolio.

    Please note: PathFinder is not a personal recommendation in respect of a particular investment. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals.

  8. Give your pension an annual check-up

    In order to enjoy the lifestyle you want in later life, it’s important to have a good idea of how much you need to save to get there. Fidelity’s retirement calculator can help you estimate how much you’ll need, and myPlan will show you whether you’re on track to achieve it.

    Try not to monitor your portfolio too frequently. Stock markets can be unpredictable and your investments will perform differently over time, so it’s important to keep the long term in mind and see past any short-term peaks and troughs. Instead, schedule a check-up every year to make sure your investments still match your attitude to risk and are on course to meet your financial goals.

Here to help

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 6pm.

Important information

The value of investments 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 future. This information is not a personal recommendation for any particular investment.

You cannot normally access money in a SIPP until age 55. Company shares are not yet available for all Fidelity SIPP holders and are not eligible for this offer within a SIPP. Pension transfers can be complex and pensions with safeguarded benefits and advised transfers are not eligible for this offer. Please read our pension transfer factsheet, cashback T&Cs and exit fees T&Cs, at fidelity.co.uk/cashback.

1 Source: Office for National Statistics lifetime tables: 2015-2017, release date 25 Sept 2018
2 Source: The percentage statistics are taken from the FCA Data bulletin, March 2018, on consumer attitudes and experiences of defined contribution pension savings
3 Source Fidelity International as at March 2019. Based on current rates for a 68 year old male buying an annuity income that rises with inflation
4 Source: Fidelity International’s retirement savings guidelines white paper, November 2018
5 Source: Estimate based on average household incomes that does not take into account personal circumstances. Example of a male, with a retirement age of 68, with household savings of £175,000, withdrawing between 4% to 5% of household retirement savings in the first year of retirement with adjustments for inflation, over a 24-year period

Bring your pensions together and take control of your future

Plus get £20 to £1,000 cashback. Exclusions, T&Cs apply.