Don’t ignore your financial future, experts beg
As the helm of the DWP changes hands yet again, retirement savers are lost in a sea of uncertainty
It’s difficult to know how much Therese Coffey, the new work and pensions secretary, knows about the subject given her ministerial experience to date has been with Defra.
An accountant by trade, Coffey is the sixth minister to pass through the revolving doors of the DWP since 2016 after Amber Rudd resigned last weekend.
But she needs to get up to speed fast if she hopes to help steer a rudderless nation battling the effects of increasing longevity, massive shifts in the way people save for retirement, plummeting annuity rates and precious little action from Westminster on anything that isn’t Brussels-related.
Data from her own department this week revealed, for example, that amid widespread confusion and fear that the money is going to run out, a record number of workers are now over the age of 50. At just under 11 million adults, that’s a rise of 32 per cent over the past decade.
Separate data from Aviva has found that 61 per cent of UK adults are worried about the prospect of a longer working life – some 20 million people.
But many of them have no idea whether their efforts to stave off old age poverty are enough or not.
Tomorrow (15 September) is Pensions Awareness Day, when all sides of the industry will try to shake people into taking action on their retirement savings. Or frankly, just to acknowledge that they should probably look at it.
With no news on the Pension Dashboard – the government-backed scheme designed to give Brits a way of seeing all their savings in one place and, crucially, what it could equate to in retirement income – it really truly is time to take control of our financial futures.
That means finding out how much you’re likely to have in your pension pot and how far it will get you depending on how you decide to take your pension income.
Research by Aegon suggests one in 10 of us still don’t have any pension savings at all, despite a huge scheme that means employees now automatically save through their salary, topped up by the government and their employer.
A quarter of those with pension savings don’t know how much is there and more than a third of us have never bothered trying to work out how much we’ll need to live on after we stop work.
In fact, data from Hargreaves Lansdown suggests that only four in 10 think they’ll be able to afford to retire – hence that increase in the number of working pensioners.
But even among those who do have savings and may know how much they have, there’s a huge information gap when it comes to where their money is and how they may need to manage it to achieve the retirement they want.
Only a quarter of people think their pension is invested in the stock market, for example.
Nobody relishes the opportunity to dust off their old pension statements and dig into the details, but while it’s unlikely to be the most exciting hour of your life, it could be the most lucrative. After your house, your pension is likely to be your biggest asset when you get to retirement, so it deserves some time and attention at least once a year, says Nathan Long, senior analyst at Hargreaves Lansdown.
“Start by locating all your old pensions and having a look how much you have in there, the charges, and any valuable benefits on offer. If you have a defined benefit pension, or useful guarantees it may make sense to hang onto this pension.
“If, by contrast, you have a number of old-fashioned and expensive defined contribution schemes, you could consider consolidating them into something newer. This will make them easier to keep an eye on too.
“Take some time to understand where your money is invested. Taking on a bit more risk by investing more in shares and less in cash and bonds can give your pension a boost in the long term. Your pension provider should have some helpful information, or a financial adviser can help steer you in the right direction.
“Finally, think about how much you pay in. Boosting this by even £10 a month can add up to a good dollop of extra pension when you finally finish work.”
Visit www.pensionwise.gov.uk, the organisation that now covers the free services delivered by the Money Advice Service, the Pensions Advisory Service and Pension Wise to book a free appointment and find out more about your money and your options.
Five tips for retirement confidence
1. Act now, make a plan and start saving
Unlike a mortgage or a car, you can’t borrow for retirement. You need to make a plan for retirement, and take action so you aren’t caught short. And the sooner you start the longer your savings have to grow.
The more savings you have, the more choice you have at retirement. So work out how much money you might need when you retire. A good place to start is by basing your financial needs in retirement on your current lifestyle and adapting it to suit the “retired” you. There are online tools available to help you do this or for a personalised picture, seek financial advice.
Your older self will thank you for it later when you can afford to travel, eat out, take up hobbies, buy cars and handle any unexpected expenses.
2. Patience could pay – retire later
Think carefully about your planned retirement age. You may have 60 or 65 fixed in your mind, but being flexible may give you more time to build up enough savings so that you can actually enjoy your retirement in comfort and not be forced to scrimp too much.
For some, working beyond “traditional” retirement age could be the answer to making up a shortfall in pension savings. And an increasing number are choosing to do so not simply for financial reasons but to keep active and for social reasons. Working a few years longer while continuing to save in a pension can dramatically improve retirement incomes. There can be a triple boost of continued investment growth on the pension fund, further contributions being added and ultimately fewer years to spread the fund over once no longer working.
3. Get the full picture. Find out what state pension you will get
Check your state pension entitlement and state pension age. This way you’ll know exactly how much you can expect to receive and from when. This will help you work out how much extra you need to save yourself in a pension. Due to the complexities of the system, different people will have built up different entitlements and not everyone is eligible for the full new flat rate state pension. Get a state pension forecast online or phone the Future Pensions Centre helpline on 0345 3000 168. You need to pay 35 years of full rate national insurance contributions to get the full state pension. Find out if you have any gaps in your national insurance contributions and how you can fill those gaps.
4. Keep track of old pension pots
Multiple jobs with different companies means that a lot of people now have more than one pension and it has become easy to lose track of some pension savings. It’s very hard to plan your retirement without a full view of your savings and it’s important everyone has a clear idea of how much their overall pensions are worth and what their state pension entitlement is likely to be.
If you’re not sure whether an old job came with a pension then it’s definitely worth checking. The government offers a pension tracing service.
Once you have tracked down all your pensions you could consider combining them with one pension provider. However, there are pros and cons of consolidation and this is one area where professional financial advice will really add value.
5. Review your investments
It’s important to keep track of how the investments within your pension fund are performing and assess whether you might be better off moving to a different investment fund.
When you join a workplace pension your contributions are put into the “default fund”. This is designed to be broadly appropriate for members generally. You might want to consider an investment approach that’s more tailored to your needs. Investment can be daunting for some people but it’s a topic financial advisers can help with. You can find an adviser through Unbiased.
Planning a retirement income and when to start taking it requires careful consideration and a financial adviser can provide tailored advice to meet your personal needs and circumstances.