Interactive Investor

If you have two minutes…10 pension ‘quickies’

If you are time-poor or a procrastinator, this approach to financial admin could save you from future pensions purgatory and even make your retirement pot bigger.

27th December 2023 10:21

by Nina Kelly from interactive investor

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How often do you manage to complete all the items on your to-do list? If I can tick off a few items a day, that feels good enough for me. Yet some items are constantly moving on to a new list (which means they never get done). Pension admin is, I suspect, a longstanding item on many to-do list(s).

But kicking pension-related tasks into the long grass puts the You Yet to Come in mild peril.

So, below are some pension tasks, broken down into small chunks of time, meaning you can, hopefully, tick off some of them during that dark “Crimbo Limbo”period when the festivities are behind you and new year celebrations lie ahead. Undertaking a little bit of light pensions admin could even boost your pot size.

Here are 10 quick pension tasks that could leave your retirement savings in better shape.

Pension tasks to the minute

If you have 1 minute

Think about following Alice Guy on LinkedIn – I’ve even provided the link! – our brilliant head of pensions and savings, for the latest analysis and updates on all things pensions.

This one-minute task isn’t a cop-out on my part. In the past year alone, for example, the government has made changes including abolishing the lifetime allowance (the maximum amount you can save in a pension), and upping the annual allowance (how much you can pay into your pension each year) from £40,000 to £60,000.

Alice is a former chartered accountant, who switched career in her 40s and moved into financial journalism. She crunches various data sets (so you don’t have to) and shares insights, for example, on how much you need to save for retirement in your 20s, 30s, 40s and 50s, how much pension wealth you need if you live to be 100, the state of the gender pension gap, and more.

I hope you’ll agree that this is one easy way to stay abreast of the shifting pension landscape, including crucial universal policy updates such as changes to the state pension age.

If you have 3 minutes

Email your Human Resources or Pensions department to ask if the company offers contribution matching on pensions and, if so, what percentage is available (if you don’t already know).

Under pension auto-enrolment rules introduced in 2012, when it comes to defined contribution (DC) pensions (this is most people with a workplace pension), your employer must chip in a minimum of 3%, while you must pay in 5%, meaning 8% in total.

However, a range of employers will be more generous and pay in above the 3% if you are prepared to match it.\

Taking advantage of employer contribution matching is a sure-fire way of getting more money into your pension, especially since many experts have long argued that the current auto-enrolment total of 8% is not enough for most workers.

In September, Alice Guy warned that: “It’s important to bear in mind that you may need to save more than the minimum pension amounts to achieve a comfortable retirement. In the future, policymakers need to consider increasing auto-enrolment percentages above the current rate of 8%, which is not enough for most people to achieve a comfortable retirement.”

Personally, I don’t want to wait for policymakers to increase the auto-enrolment percentages, as there is no knowing when or whether this will happen.

If you can afford to, it makes sense to take your financial future into your own hands and save more than the bare minimum.

If you have 5 minutes

If you were to die prematurely, who would you want to inherit your workplace pension(s)?

If you fill in an expression of wishes form (my pension providers allow me to do this quickly and easily online, for instance) you can ensure that your nearest and dearest will be able to access the money with minimal fuss. It’s particularly important to update the form if you experience a significant life event such as a wedding or a divorce.

Death is never a fun thing to think about, but keeping your beneficiaries form up to date could spare your loved ones extra “sadmin”.

If you have 6 mins

Is it time to think about consolidating? This is where you bring all your pension pots together, which means you can save on fees and charges. Over time, both take a painful bite out of your overall savings.

It’s often also easier for people to have their pension in one place, so they can have an overarching view of their retirement savings.

This helpful article Pension consolidation: all you need to know (reading time 6 mins) written by Faith Glasgow, my old boss and the former editor of Money Observer magazine, could help you determine whether consolidation might be a sensible move for you, and what you need to weigh up before going ahead.

It’s not a decision you can reach in six minutes, but if it sounds like a sensible move for you, allow the idea of consolidation to germinate in your mind.

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If you have 10 minutes

Examine the Retirement Living Standards, which are produced by the Pensions and Lifetime Savings Association, or the PLSA for short. The Standards are a good piece of research and should give you some idea of how much you might need to save for retirement.

The estimates for single people and couples have been thoughtfully put together and take into consideration dozens of elements, such as whether you want to run a car when you’ve stopped work, and what size pension pot you’ll need to fund yearly holidays overseas.

Do bear in mind, as Alice Guy points out, that you need to take account of inflation as it is going to affect the amount of income you need in retirement because of the rising cost of essentials such as food and energy.

The PLSA are due to publish the latest version of the Standards towards the end of 2023.

If you have 15 minutes

If you did visit the PLSA website (details above), now is probably a good time to get your online pension log-in details and check how much money is in your pension pot(s).

Having digital access means keeping an eye on your retirement savings is much easier and registering for online access (if you haven’t already) should be a quick and smooth process.

If you are disappointed by the figure(s), it’s never too late to do something about it. One blindingly obvious way is to start upping your pension contributions.

If you think you have lost track of a pension from a previous job, try using this government service in tracing it or contact your old human resources department. Every little bit of money is going to help you later in retirement. Specialist writer Rachel Lacey recently explained how to recover a lost or misplaced pension.

If you have 17 mins

Now that you have online access to your pension, it’s time to discover whether you are in the “default” pension fund and, if so, what this fund is invested in.

If you are young, hopefully the bulk of your pension is in shares, since this is a riskier asset type, but one which has the best potential for growth given the lengthy time horizon.

If you never made a choice about where to invest your pension money, you are probably in the default fund. If the fund has the word “Cautious” in the title, for example, and you are still early in working life, you might want to give some serious thought to swapping to a different fund. Since you likely have decades of work ahead of you, you can afford to take some calculated risk with your fund choice, i.e., have more invested in equities.

If you are older and in a default fund (sometimes called a “lifestyle” fund), you might be approaching the “de-risking” period, where more of the fund moves into bonds (traditionally considered a defensive, protective asset although it depends on market conditions). A heavier weighting to bonds could be a desirable move, but less exposure to equities will stymie the growth of your pension.

If you are likely to want an element of income drawdown in retirement, and you are happy making your own investment choices, you might want to consider a SIPP (self-invested personal pension), which can be acquired through an online investment platform, such as interactive investor. A SIPP allows you to choose your own investments and then you aren’t automatically de-risked at around the age of 50. I write more about SIPPs further down.

Changing your pension fund is not a decision I’d suggest anyone make in 17 minutes, but this article might at least get you thinking about whether your pension fund is the most appropriate one for you.

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If you have 19 minutes

Listen to this episode (19 mins) from our On the Money podcast, which examines whether you should overpay the mortgage or pay surplus cash into your pension (if you are in the lucky position of having excess money). My colleagues Alice Guy and Kyle Caldwell discuss the key things to weigh up.

You can listen to the episode on SpotifyApple PodcastsAmazonGoogle Podcasts or via the interactive investor website.

If you have 30 minutes

Do you need to factor in an ISA, as well as a pension, for retirement saving?

The advantage of an ISA is that you can withdraw money from it tax-free at any time. In contrast, when you draw down money from your private pension, you are taxed, and the money is locked away until age 55, rising to age 57 from 2028.

If you end up retiring early, perhaps because of unexpected ill health or caring responsibilities, any money held in an ISA, combined with funds from a private pension, could potentially help keep you afloat financially until you can access your state pension.

Once you have retired, during periods of high inflation you can potentially call on savings in your ISA to help tide you over. That’s because if you continue to draw down the same amount from your pension or more to help you manage higher costs when inflation is high, this will eat into your pot in an unsustainable way, meaning you could run out of money sooner than might otherwise be the case. It might be useful at this point to read a piece by Alice about the 4% pension income drawdown rule.

Our personal finance editor, Craig Rickman, also recently wrote about how pensions and ISAs can work in harmony.

Bear in mind that ISAs could attract inheritance tax when you pass away.

If you have one hour

Is a SIPP a good fit for you? It can give you more choice and control. As a SIPP is a private pension, you can access it at the same time as your other private pensions. If you have a workplace SIPP, your employer can contribute to it, and you’ll also receive tax relief on their contributions.

With a SIPP you have access to an Aladdin’s cave of funds, shares, investment trusts and ETFs, while workplace pensions may have only a limited number of investments to choose from. Crucially, though, you must be comfortable managing your pension yourself.

You can save money by having a SIPP, not only because you have consolidated multiple pension pots, so you are paying less in fees, but also because a SIPP with a flat fee, like ii’s, means the amount you are charged is static. This matters because as you build up your pension, a percentage fee on a SIPP means you will lose a bigger slice of your wealth to fees as your pot grows.

For greater insight, you can read about the experiences of four ii customers who have opened an ii SIPP

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Important information – SIPPs are aimed at people happy to make their own investment decisions. Investment value can go up or down and you could get back less than you invest. You can normally only access the money from age 55 (57 from 2028). We recommend seeking advice from a suitably qualified financial adviser before making any decisions. Pension and tax rules depend on your circumstances and may change in future.

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