The period in between Christmas and New Year offers some time to get ‘life admin’ such as pensions sorted.
Last Christmas, interactive investor pension customers logged into their accounts in higher than usual numbers for the time of year.
Total pension customers visiting the interactive investor website in Christmas week were up from 41% in 2019 to a staggering 52% of SIPP customers from December 25 to 31 2020, as people found ways to keep themselves busy during the festive period spent in lockdown.
This ‘Twixmas’ – that’s the period in between Christmas and New Year - may again offer us all a bit of time to get ‘life admin’ such as pensions, sorted.
Becky O’Connor, Head of Pensions and Savings, interactive investor, says: “Rarely will your pension get its moment at the top of your to-do list, but ‘Twixmas’ – the week in between Christmas Day and New Year’s Day, might be just the moment for a bit of ‘penmin’, that’s: pension admin.
“Besides going for National Trust walks, watching Netflix and eating cheese, it’s a great time of year to tackle some of the things you know you need to do but never quite get round to. Clearly, interactive investor pension customers agree, if the numbers logging in during Christmas week are anything to go by.
“If you aren’t sure where to start with your penmin, follow my top tips to maximise the benefit of that moment where you have a bit more time on your hands for your future retirement.”
Becky’s top 11 tips for pension-related admin to tick off your Twixmas to-do list:
- Log in to your pension, online or on the app, if you have one. If your provider offers an app you aren’t using, now could be the time to download it. Do this for current and former workplace pensions. This is one simple act that could help you prioritise your pension next year and beyond.
- Checking in on older pensions from former jobs might prompt you to consolidate your pensions into one place. There are many reasons people consider consolidating, including making their pension admin easier when the time comes around. Other reasons are charges, a wider or better choice of investments available elsewhere and the convenience of being able to draw down from one pot when you reach retirement age. Not everyone is able to move their pensions though – you might have some benefits or guarantees that prevent this. It’s worth checking this, too, if you have been thinking about moving your pots to one place.
- Check how much is in your pension, looking back to how much was in it a year ago. This reminder of your pension progress and a clearer sense of the difference one year can make can be surprisingly encouraging.
- Also check the returns. It’s useful to pull apart how much of the growth has come from investment returns, how much from your own contributions, how much from your employer and how much from tax relief, to give you a better idea of the value of all these elements of your overall pension. If your pension fund hasn’t done so well, check which asset classes and sectors it is invested in that have dragged it down. It might be a prompt to shift the focus of your fund, if that’s an option for you.
- Consider whether you want to increase your contributions for next year. If you’ve found it no trouble to make contributions at your current rate, perhaps you can afford a little more? You should especially consider this if you haven’t yet maximised your employer matching scheme. If you put more in, check whether your work will too, and what the maximum amount is your employer will contribute.
- You’ve got a bit more time on your hands, so why not spend some of it working out, using a retirement income calculator, like this one on interactive investor, whether your pension is likely to give you a decent retirement income? The Pension and Lifetime Savings Association (PLSA) recently suggested that £20,800 a year, including state pension, is enough for a decent income in retirement. You’d need a pot worth around £300,000 roughly by the time you retire to deliver this, assuming you’ll get a full state pension. Are you on track? Is this amount right for you, or do you think you’ll need more when you retire, for a luxury lifestyle, perhaps. Checking in on this can give you an idea of by how much you might need to increase your contributions.
- Consider whether you want to move to a more or less growth-focused set of funds. The risk level of your pension should be aligned not just with your own personal risk appetite but also with your age and retirement plans. Generally speaking, the younger you are, the more risk you can afford to take as you have a lot longer until you retire. But even for older pension investors, a higher proportion of equities can have its place, particularly if you are conserving some of your pension to leave to relatives, or you don’t plan on retiring for a while. Remember that while inflation is relatively high, to keep your pension growing at a rate above prices, you’ll need to invest a proportion in higher-growth equities.
- While you are at it, check whether the fund you are in is sustainable or whether your pension scheme offers a sustainable option you like the look of, instead of your current one. It’s usually possible to switch relatively easily within the same plan.
- Fill out your ‘Expression of Wishes’ form, if you haven’t already. Interactive investor figures suggest that only around 15% of pension customers have filled out these forms, which enable you to nominate who should receive your pension when you die. It’s important because defined contribution pensions are not part of your estate, so aren’t covered by your will. At a time of focus on loved ones, make half an hour to log in to your pension account and tick off this bit of pension admin.
- Spend some time thinking about the age you might like to retire, what you would do if you had to retire early, what might be some of the things that could get in the way or place additional demands on your finances at that time of life, such as helping children with university costs or the need to care for elderly relatives. Keep in mind that you will be able to access your private pension from age 55, but unless you have been very focused on pensions, are unlikely to be able to retire at this age. Your state pension entitlement age could be from 66 to 68, depending on how close you are now to retirement. Work out whether ISAs could also help you plan your retirement, bearing in mind your current taxpayer status; the age you plan to retire and likely taxpayer status when you do retire. With ISAs, you pay into them from post-tax income but don’t pay income tax on what you take out from them; with pensions, you don’t pay tax on the contributions but you will be liable for income tax on withdrawals, after your 25% tax-free lump sum has been claimed.
- Check your state pension record to see if you are on track to receive a full state pension, here. You’ll need a government gateway log in. You could be pleasantly surprised at your progress, particularly if you worked part time when you were younger. If you are worried you are behind, you can plug gaps in your NI record with class 3 or class 2 contributions.
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