They say size doesn’t matter. 

But when it comes to your pension pot, it absolutely does. Because the size of your pension pot determines the type of lifestyle you’ll be leading in retirement. 

Here are 5 mistakes that 99% of us are probably making when it comes to our pensions. 

  1. Not thinking through the amount that you want to have in retirement

The Pensions and Lifetime Savings Association categorises pension lifestyles into three types: minimum, moderate and comfortable. Depending on what your ultimate retirement goals are, you should figure out approximately how much money you’ll need each year in retirement. Once you have this figure, you can see if you’re on track or not by checking your workplace pension pot and your National Insurance (NI) contributions. 

  1. Not getting your State Pension forecast

Your State Pension is going to fund your retirement, at least in part. A lot of people wonder if they’ll benefit from this by the time they reach retirement age. And it’s true that policies may change in the future. But we still need to plan for it, and the NI contributions are coming out of your monthly paycheck regardless. 

It might be helpful to think of the State Pension as a type of diversification of your funds. It’s no different to money coming in from a different income stream. And a huge benefit of the State Pension is the triple lock, which means that the amount pensioners receive increases in line with inflation each year. 

So once you’ve worked out how much money you want to have in retirement, you’ll need to check your State Pension forecast.  

You can check your State Pension forecast online by signing in with Government Gateway. Or you can get this information from the government’s Future Pension Centre. You’ll need to phone them up and give them your National Insurance number, and they’ll pop a pension forecast in the mail for you. Once you receive that, you’ll know if you’re on track for a full State Pension or if you need to think about plugging any gaps.

  1. Overlooking the value of your employer’s matched contributions 

The State Pension alone isn’t enough, especially if you want to have more than a minimum lifestyle in retirement. So you will likely need to supplement with a workplace pension and/or a private pension to have the kind of lifestyle you want. 

Make sure you log in to your workplace pension and check your monthly pension contributions. If you aren’t already, make sure you’re taking full advantage of your employer’s matched contributions, because those contributions are tax-efficient and it’s free money! It’s also super satisfying to see that pension pot grow over time.

  1. Not using pension contributions to reduce your net income (if you need to) 

If your career progression or your annual bonus has taken your salary into the higher tax band of 40%, you might want to consider putting more into your pension to reduce the amount of taxable income you get. This will also allow you to retain more of your child benefits, which you might otherwise lose access to by being in a higher tax bracket. 

  1. Not keeping track of your pensions 

There’s around £26.6bn worth of lost pension pots in the UK according to the Pensions Policy Institute. Since auto-enrolment made contributing to a workplace pension easier, if you’ve had a few jobs, and you haven’t kept track of your pensions, some of this money might be yours. You can use the government’s Pension Tracing Service as a starting point to find any lost pensions you might have. 

By consolidating all your pensions in one place, they’re not only easier to keep track of, but you’ll also get the benefits of a larger sum of money compounding over time.

Does it feel like the more you hear and read about pensions the less you know?

Pension headlines can inspire anxiety at best, and sheer terror at their worst. But we only fear what we don’t understand. By attending this webinar, you’ll learn all about the pension basics, so you can lay the groundwork for a comfortable retirement in the future.

Pensions are one of the most powerful tools that you have at your disposal to make sure you have the retirement you dream of.

But the reality is most of us hugely underestimate how much we’ll need for a comfortable retirement. Or worse, don’t even know how much we’ll need! Whether you’ve been auto-enrolled since your first job, or you don’t know the difference between a State Pension, a workplace pension or a SIPP, this webinar is for you.

Once you’ve decided you want to consolidate your pensions, the next action is to choose who to use.

Choosing what to do next can feel like an overwhelming decision. But we can break this down into some simple, manageable steps focused on finding a provider that meets your needs. 

Plus, if things change in the future you can always change providers. It’s not a ‘forever decision’. 

The three main things to think about are:

  • Service – Do they provide the support you need?
  • Investment choices – Do they give you access to the investment options you want?
  • Costs – How do the full costs of the service compare to the support they’re providing?

Questions to ask yourself about the service  

  • How will you connect with them – is there an app you would use?
  • Can you speak to a person when you want to?
  • What support do they provide? For example, around investment choices or how much to pay in and post retirement options?
  • Will they help you with the consolidation process? Even if you don’t need help, you might want support doing this.

Questions to ask yourself about the investment choices

Providers can offer a variety of different investment choices. They can range from a very wide choice with little support, to a smaller selection with more guided support on where to invest.  

How much support you want and how confident you are in choosing and monitoring your funds will be the main driver of your decision here. 

Are you the kind of person who’ll want support making investment choices? Or are you happy to take charge of everything yourself?

Questions to ask yourself about the costs

This is about value for money rather than the lowest price. When comparing costs it’s important to understand what you’re paying for. If you want support and guidance, this usually comes at a higher cost. If you’re confident doing it all yourself, the cost will generally be considerably lower.

Something that can help here is to write down a list of providers and judge them against what you want from them. 

If you’re struggling with a final decision, remind yourself of the reason you decided to consolidate then rank the shortlist against your priorities. This should leave you with your final choice.

Do you know how many times the average person changes jobs in their lifetime? 12 times, according to the latest available public survey data from 2019. 

With each new workplace comes a new pension pot and maybe a new pension provider. So what’s the best way to manage them all?

This will depend on a couple of things, mainly the types of pensions you have. 

If you’re lucky enough to have a defined benefit pension, for most people leaving it where it is will be the best choice. If you’re thinking about transferring it you’ll need to take independent financial advice.

Most of us will have defined contribution pensions

The main reasons to consolidate these are:

  • Easier admin – you only have to deal with one company when dealing with your pensions.
  • No trouble tracking – it’s easier to track your pension’s performance against your retirement goal. You’ll be able to see in one place how your pension is doing and work out what you need to do to increase it. 
  • Make changes in one place – it’s easier to review your investment choices and make changes all in one place.
  • Lower fees – you might reduce the overall charges of your fund by transferring them all into one place. 

Before you consider transferring your pensions, you’ll need to check whether your old pensions have any attractive benefits. For example, one of them might include additional death benefits (like a lump sum paid to your loved ones should you die) which you may not want to lose.

The right answer to the question ‘should I consolidate my pensions’ will look different for everyone as everyone’s situation and goals are different. The best thing to do is gather all the information you need and make the best decision for you.

What’s all this about lost pensions?

There are £19.4 billion pounds worth of ‘lost’ pensions in the UK, according to the Association of British Insurers. That’s 1.6 million pension pots worth about £13,000 each! 

How does this happen?

From the age of 22 (and sometimes before this!) you’re likely to have joined a workplace pension provided by your employer. Different employers offer pension schemes with different providers, so you might have several pensions from all of your past employers.

Pensions can be ‘lost’ when you change jobs. If you don’t move your pension scheme, it stays with your previous employer. You don’t lose the money you’ve built up, it just gets ‘parked’. 

How can I find my old pensions?

If you’ve lost track of your pensions, or aren’t sure whether you’ve previously had one, tracking them down will give you a better idea of how much money you have. This will help you to plan your dream retirement. 

While the pension providers should be contacting you each year, they might not be able to trace you if you’ve moved address. 

So, if you want to make sure you know where all your pensions are, the starting point is to:

  1. Think about all the jobs you’ve had and list all your previous employers
  1. Check which ones you’ve had any communication with about pensions
  1. Make sure they have your current home address
  1. If there are employers you can’t find any pension information for, you can:
  • Contact their HR team for details
  • Then contact the pension provider to find out your information
  1. If they no longer exist, or you can’t find their contact details, you can:
  • Check on Companies House  to find out whether the company has changed its name, been taken over or doesn’t exist anymore.  
  • You can also use the Government service to help you. Click Find pension contact details – GOV.UK to do this. It will help you find out the most recent information your previous employer provided to the Government.
  1. Once you know the name of the pension provider, you can contact them to get all the details of your benefits.

When you contact the providers, you’ll need your personal details, including your full name (and previous names if applicable), plus your National Insurance Number.

This can feel like a big question with lots of unknown unknowns. Since your pension is basically your salary for ‘future you’, the simplest way to figure out how much you’ll need is to ask yourself  ‘what income do I want in retirement?’

The first thing to remember is that at State Pension Age, you’ll get the State Pension of around £10,600 a year. This is the maximum amount you can receive in 2023-2024, but this number may change in the future in line with inflation. You’ll only be eligible for the maximum  State Pension payments if you’ve been paying National Insurance contributions for at least  35 years. 

How much money do I need for retirement?

Think about the lifestyle you want. 

We can generally break this down into 3 types:

  • Minimum lifestyle – £14,000 (for singles), £20,000 (for couples). 

This is the minimum you’d need to provide a basic retirement, enjoying the occasional meal out and modest holidays each year, possibly only in the UK. 

  • Moderate lifestyle – £24,000 (for singles), £34,000 (for couples)

This is enough to enjoy regular meal outs and holidays each year. You’d also be able to afford running a car and minor house renovations.

  • Comfortable lifestyle – £38,000 (for singles) £54,500 (for couples)

With this you’d be able to enjoy holidays abroad, eating out regularly, replacing your car every 3 years, and the ability to make major house renovations. 

Once you have your State Pension forecast and an idea of the kind of lifestyle you want, you can check if you’re on track to achieve your dream lifestyle, or if you’ll need to make up the difference. This can be done through a combination of different assets, like your workplace pension, a personal pension, and some investments. 

What’s the ‘half your age’ pension rule?

The traditional basic rule is that when you first start paying into your pension, the percentage you contribute should be half your age. This number includes the combined employee and employer contributions. 

For example, using this ‘rule’ a 20 year old earning £20,000 a year would make 10% pension contributions. These contributions will build a pot that provides an income of around £6,000 a year from their pension. This would put them between the Minimum and Moderate lifestyles (once the State Pension is included).

If they earned £40,000 a year and paid the same contributions, they would have an income of around £18,000 a year from their pension, putting them between a Moderate and Comfortable lifestyle (once the State Pension is included). 

If they delayed starting to contribute to their pension until age 40, the income from their pension in retirement would fall by around 30% (£4,000 on a salary of £20,000 and £12,000 on a salary of £40,000).

The ‘save half your age’ pension rule isn’t a hard and fast rule, but can be really useful as a starting point. If you start paying into your pension early, you don’t actually have to increase this percentage as you get older. That’s part of the benefit of starting sooner rather than later and using this guideline. 

Most pension providers have a pension calculator on their website. You can use this to work out how much you need to contribute to achieve your desired retirement income.

Different pension calculators use different assumptions to make their calculations, so you might find small differences in the long-term projections. But you’ll still get a good general idea of how much you’ll have in retirement. 

When working out how much you’ll need, remember that generally you’ll no longer be paying off your mortgage or saving. 

One of the most common questions people have about their pension is, ‘well, when can I even access it’? 

It can feel a bit strange to lock money away for such a long time for ‘future you.’ But this is actually one of the best things you can do for yourself to make sure you have enough money later to live the life that you want! 

So when can I get that money?

Right now, the earliest you can access your workplace or personal pension is at age 55. This is also known as the normal minimum pension age (NMPA). The government sets this number. 

But from 6 April 2028, the normal minimum pension age will increase to 57. So after that date, the earliest you’d be able to get money from your workplace or personal pension would be when you turn 57. 

When it increases, you still might be able to access your pension at 55 if your pension scheme has a protected pension age (lucky you!). 

You’ll have this option if all the following apply:

  • you had money invested in the pension scheme on 3 November 2021
  • the rules of that pension scheme gave you the right to take your pension savings from an earlier age than 57
  • those rules were in place on 11 February 2021

The rules around the protected pension age can seem a little complicated. But basically, if you were paying into a defined contribution pension before 3 November 2021, it’s likely you’ll be able to claim your pension at age 55. But if you change jobs and start paying into a new pension scheme, the earliest you’ll be able to access your pension money is age 57. 

What if I transfer or consolidate my pensions?

If you transfer your pension, you could also have a protected pension age if you transferred:

  • from a pension that meets the conditions we mentioned above as part of a bulk transfer (this just means that it’s a transfer with at least one other member) to a new scheme after 11 February 2021. 
  • into a pension that meets the requirements above on, or before, 3 November 2021.

If you transfer your individual pension savings from a pension that has a protected pension age to one that doesn’t, the protected pension age might still apply to the transferred pension savings. But, this will depend on the terms of the pension you’re transferring into.

So it’s always important to make sure you know the minimum pension age and read the terms and conditions carefully before transferring or starting a new pension.

It might be possible for you to access your pension before the minimum pension age if you get ill. But you’ll need to check with your pension provider to make sure. 

Always watch out for scams 

If you’re offered the option to transfer your pension to allow early access, it could be a scam. And it would mean that you could lose your pension money or receive an unexpected tax bill. 

Scammers are relentless so it’s always important to be cautious when it comes to your money. 

Ok, what about my State Pension?

In the UK, the State Pension age is different from the normal minimum pension age. The State Pension age is currently 66 years old. So if you’ve made at least the minimum amount of National Insurance contributions (10 years), you’ll be able to claim your State Pension from that age. 

But, the government is planning to start gradually increasing the State Pension age from 6 May 2026.

Whenever something major happens with the economy, especially if it causes financial turmoil (like the UK’s mini-budget in September 2022), a question you might be asking yourself is “how safe is my pension?”

Overall, pensions are safe as they’re often covered by the Financial Services Compensation Scheme (FSCS) and the Pension Protection Fund. 

There are two types of workplace pensions – Defined Benefit and Defined Contribution – and then there’s the State Pension. You can also have a private personal pension, like a SIPP, a self-invested personal pension. Personal pensions are like a supplement to your workplace and State pensions. 

Is my Defined Benefit Pension Scheme safe?

In this kind of pension scheme, your employer has agreed to make sure there are enough funds for the pension scheme to pay you the benefits you’ve been promised. 

If something happens to your employer (if they go bankrupt for example) and the scheme doesn’t have enough money to pay your benefits in full, then the Pension Protection Fund will step in to protect your benefits and cover the costs. 

The Pension Protection Fund usually pays 100% compensation if you’ve reached the scheme’s pension age, and 90% compensation if you’re below the scheme’s pension age. 

There are different rules for public sector schemes, where the Government usually makes sure the scheme has sufficient funds to pay your benefits when you retire. 

Is my Defined Contribution pension safe?

Most employers use a pension provider to hold your pension benefits. This means if your employer goes out of business, you won’t lose your benefits.

Pension providers should be registered with the Financial Conduct Authority (FCA). This means your benefits are protected if the pension provider goes bankrupt.   

If it’s unable to pay your benefits in full, you can get compensation of up to £85,000 from the Financial Services Compensation Scheme (FSCS). 

Some employers set up their workplace pension under a Trust. If your employer goes bust, the scheme may use some of your money to run it. Your benefits will remain secure though.

One key thing to remember is that the value of your investments can fall or increase in value. And each person bears the risks of this happening to their investments. So any compensation that’s paid out won’t cover investment losses, it’ll just cover the amount of money that was in your pension. So let’s say for example, you put £10,000 into your pension fund. But the investments hadn’t performed well so the total amount in there was £9,000 when the pension provider went out of business. In this case, you’d get £9,000 back, which is the value of your pension fund, not the £10,000 you put in. 

What about my State Pension?

The State Pension is money you get from the government when you reach the State Pension age. The State Pension age is currently 66, but it’ll increase to 67 by the end of 2028. There may be additional increases after this as the UK population ages. 

You’ll need 10 years of National Insurance contributions to get the minimum State Pension, and 35 years of National Insurance contributions to get the full State Pension. 

What about pension scams?

One last thing to add is on pension scams.

Scammers are going to scam, and there are a LOT of scams out there. They often try to get you to transfer your pensions somewhere else. And they’ll usually approach you with amazing promises of guaranteed returns. 

Before transferring your money anywhere, take a step back and do some research. Legit pension providers won’t be sending you messages or emails out of the blue asking you to move your money over. 
Be sure to check the FCA website for guidance on avoiding scams. It’s a great resource that can help you stay informed and up to date so that you can protect your very important pension savings.

A salary sacrifice pension is where you agree with your employer to give up part of your salary so you can get extra employer pension contributions. It’s sometimes called salary exchange.

How does it work?

First, your employer reduces your salary by an agreed amount. And then pays that same amount – plus your company’s normal employer contribution – into your pension each month.

The main benefit of a salary sacrifice pension is that it reduces your employer’s and your National Insurance contributions. This is on top of the normal income tax relief you receive on your pension contributions. 

As both employer and employee National Insurance contributions are calculated based on this lower salary, you both pay less National Insurance (it’s a win-win!). Income tax is also calculated based on this lower salary, which means you’ll also pay less income tax.

Some employers also share their National Insurance savings with their employees. This means for the same amount being paid into your pension, your take-home pay is likely to be slightly higher.

If you do choose Salary Sacrifice for your pension, it’s worth knowing: 

  • you can’t contribute so much that it reduces your salary to less than the minimum wage
  • if you don’t earn enough to pay National Insurance, you might not benefit from Salary Sacrifice

Are there any downsides to salary sacrifice pensions?

Because it does reduce your salary, there are some things to consider:

– any employer benefits based on your salary, for example Life Insurance or Critical Illness cover, could be based on the lower salary. You should check with your employer if you aren’t sure. 

–  if you’re applying for a mortgage or loan, the lower salary could reduce the amount you can borrow.

– it might impact your entitlement to certain State benefits, like Statutory Maternity Pay.

Before opting for Salary Sacrifice, it’s best to make sure you check that it makes sense for you and your individual situation. 

Can I sacrifice my bonus into my pension too?

Some employers do allow you to ‘sacrifice’ any bonuses they give into your pension. This is called ‘bonus sacrifice’ and means that your bonus is paid into your pension instead of being paid into your bank account together with your salary. You can also get an additional contribution from your employer to match this. 

The biggest benefit of putting your bonus money straight into your pension as an employer contribution is that you won’t pay National Insurance or income tax on it. Because of this, the whole amount is added to your retirement pot, which means more money for ‘future you’. 

Not all employers offer this, but it’s worth asking your employer if they do.