Steven Cameron urges savers to beat the retirement blues by getting their pension planning on track in 2020.
The season for overindulgence is behind us for another year, we’re back at work and the January blues have set in. As we get back on track with better lifestyle habits this month, it’s also a good time to reflect on the impact that a lifetime of financial overindulgence can have on retirement plans.
Those who don’t make the right preparations for later life, could realise too late that they haven’t saved enough to enjoy their old age. But by then, it could be too late to do anything about it.
Thinking about pension saving can leave some of us feeling confused, but taking the time to evaluate your retirement savings is a worthwhile task that will help you assess whether you’re on track or if need to do more.
The introduction of auto-enrolment has encouraged people to get into the savings habit, but achieving the level of retirement income that people aspire to, often means saving a lot more than they currently are. Those excluded from auto-enrolment, such as the self-employed and low earners, are at even more of a disadvantage.
A new year is usually about the “new you”, but it’s also a time for you to think about what you could do for the older, or future you. This January, avoid the retirement blues and consider some long-term financial resolutions.
Here’s a helpful to-do list to assist with getting your pension savings in better shape.
1) How much money will you need in retirement?
How much you’ll need for a comfortable retirement will depend on the lifestyle you’re aiming for in your post-work years.
The Pensions and Lifetime Savings Association (PLSA) has an online tool to illustrate Retirement Living Standards. This helps to give people a reality check on their future lifestyle in retirement based on their aspirations, whether these are minimal, moderate, or comfortable.
In addition, other online services, including calculators, can help you to compare what you’ve saved against what you’ll need to save to meet your expectations.
It’s worth breaking it into three pots - the money that you’ll need each year for necessities, money that you want to allocate for luxuries such as holidays, and any money that you want to gift to loved ones.
Being realistic is key. Think about what age you want to retire, the number of years you have left to work and whether retiring fully is feasible, or indeed what you want to do. Gradually winding down by taking a more flexible approach to working life is an increasingly popular option for over-55s.
2) Check your state pension entitlement
Find out if there are any gaps in your work history and whether you need to top up National Insurance contributions to be entitled to a full state pension.
To receive the full state pension when you reach state pension age, you must have paid or been credited with 35 qualifying years of National Insurance contributions.
3) Check your current pension
The next step is to find out how much you have saved in your current workplace or personal pension, if you have one, and how much you’re paying in.
For employees, each month a percentage of your pay is put into the pension scheme if you earn at least £10,000 a year in a single job, and thanks to auto-enrolment, your employer has to contribute too.
Make sure you maximise any employer contributions. Some employers may match your pension contribution, so if you pay an extra £1, your employer may also pay in £1, up to a limit. Ask your employer for information.
4) Have you lost track of any pension savings?
Finding all your pension pots will be a lot easier in future with the introduction of pension dashboards. But until then, there are a few steps to follow.
The first step is to go through any paperwork to find details of any old pension schemes.
Then, simply write to the company providing the pension, tell them your new address, and ask for information about your pension.
If you’re still drawing a blank because your old employer doesn’t exist anymore, or you don't have any information, don’t give up. The government offers a free pension tracing service to help you track down any missing pension pots.
Visit the website, or you can also request contact details from the Pension Tracing Service by phone on 0800 731 0193, or by post.
5) Consider merging savings
Once you have located old pension pots, an option particularly for defined contribution pensions is to consolidate them by bringing some, or all, of your separate pots into one place.
This not only makes it easier to keep track of your savings, but could save you money by reducing pension charges. It’s best to take financial advice before you do this. Anyone reviewing defined benefits entitlements must seek advice.
6) Put a plan in place to increase contributions
If you look at your savings and are worried that you don’t have enough, or quite as much as you hoped for your retirement, don’t panic. Put together a plan of action to increase your contributions, which may include making extra payments, for example, if you get a bonus or your earnings rise.
For employees, some employers will match your contributions. So, if you pay more, they will too. Check out if your employer offers this option and maximise your savings using employer matching.
7) Taking control and making the right choices
It’s easy to dismiss saving and investing as too complicated. Taking an interest and engaging with your pension will give you confidence to take decisions or to seek advice on where your pension is invested allowing for how much risk you are prepared to take.
Depending on your age and risk profile it might be worth researching investment options outside your workplace pension “default fund”. There are usually many choices available
Find out if the fund your pension is invested in is beating the benchmarks and how they are performing relative to major indices. Again, you may want to speak to a financial adviser.
8) It’s never too late to take action
With all the information gathered in the steps above, you’ll be in a much better position to work out how much you have.
It’s important not to panic if the figure isn’t as high as you thought it might be, or isn’t likely to meet your aspirations. There’s still time to take action and it’s never too late to start saving more.
9) Seek financial advice
If you are feeling overwhelmed or confused you can always speak to a financial adviser. Aegon’s Why seek financial advice? guide demonstrates the benefits of taking financial advice.
Steven Cameron is pensions director at Aegon.