For many people, their pension is a crucial part of their retirement plan. With Pension Awareness 2023 starting on 11 September, it’s the perfect time to learn more about your pension savings.
Despite pensions often being essential for reaching retirement goals, a survey suggests many savers lack pension knowledge and don’t plan to seek support.
According to a report in FTAdviser, 31% of savers either don’t know where to go for retirement advice or won’t accept support. In fact, 26% of over-55s say they won’t seek any support in the run-up to retirement. For some, not seeking advice could place their retirement at risk.
The potential knowledge gap is especially concerning given the current cost of living crisis. Rising prices could hamper people’s ability to save and place pressure on those that have already retired, who may not have planned for a period of high inflation.
Similarly, the Great British Retirement Survey 2022 found 59% of retirees worry about the rising cost of living.
The survey results also suggest people tend to be overoptimistic about their income in retirement and aren’t sure how much they need to save to reach their goals. Not fully understanding your pension or what steps you could take to secure the retirement you want could lead to the next chapter of your life falling short of your expectations.
So, here’s why you should embrace the Pension Awareness campaign to boost your knowledge.
1. Planning for retirement could mean you’re more likely to reach your goals
It’s never too soon to start planning for your retirement. Having a goal in mind and being aware of the steps you need to take to reach it could mean you’re more likely to enjoy the retirement you want.
Without a target for your pension, it can be difficult to understand what income it may provide. According to the Great British Retirement Survey, 6 in 10 pension savers have no idea what their income will be in retirement.
Taking steps to improve your knowledge about your pension now could lead to more financial freedom later in life.
2. You could identify potential gaps in your pension
Analysis from Scottish Widows suggests 1 in 3 Brits could struggle financially in retirement. A third of people are on track to receive a retirement income that means they’re “at risk of not covering their needs”.
Engaging with your pension now could help you identify potential gaps sooner. It could provide you with an opportunity to increase contributions or take other steps to bridge the shortfall. If you spot a gap in your 40s, you may have more options to close it compared to if you didn’t review your pension until you were ready to retire.
3. It could put your mind at ease
Retirement is a big step and you may need to make decisions that could affect your finances for the rest of your life. So, it’s natural to worry about if you have “enough” or how you’d cope if the unexpected happens.
Taking some time to learn more about your pension and seeking support if you need it could provide peace of mind. Tailored financial planning could help you understand the lifestyle your pension will realistically provide and what you can do to improve your financial resilience.
4. You could find ways to get more out of your pension contributions
Often, pension contributions are deducted from your salary automatically. So, you may give little thought to whether you’re getting the most out of your money.
There may be things you can do to boost your pension savings or even reduce how much tax you pay now. For example:
- Are you claiming all the pension tax relief you’re entitled to?
- Would your employer increase their contributions if you put more into your pension?
- Could salary sacrifice schemes reduce your tax liability now?
Learning more about how pensions work and why they could be a useful way to save for retirement may help your savings go further.
5. You may better understand how your pension is invested
Usually, your pension savings are invested. By investing, the aim is that your pension will grow over the long term.
If you’ve not selected how you’d like your contributions to be invested, they will often be in your provider’s default fund. It’s worth taking a look at how your pension is invested and what the other options are. Typically, a pension provider will offer several funds to choose from, with various levels of investment risk.
How you invest your money will have a direct effect on the value of your pension when you retire. So, spending some time understanding how it could help your savings grow to support your goals may be worthwhile.
We can offer you advice about your pension
Retirement advice that’s tailored to you could provide peace of mind when you reach the milestone and help you get the most out of your money. If you’d like to talk about your pension, whether retirement is years away or just around the corner, please contact us to arrange a meeting.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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.