August 7, 2024
According to research, around £26.6 billion is currently trapped in forgotten pension pots, with as many as 1 in 20 people missing out on benefits from pension funds they don’t know they have – with an average of around £9,500 each. And the amount is rising.
2018 research published by the Pensions Policy Institute, followed by an update in 2022, showed that the scale of lost pension pots had risen by £7 billion in just four years.
How do people lose track of pensions?
It’s easier than you might imagine. With many people having multiple jobs over their career, it’s common to accumulate several different pension pots when changing employers. When you factor in changing jobs, and moving house, keeping your contact details up-to-date with every pension fund is easy to overlook.
If you think you’ve mislaid a pension pot somewhere, and aren’t sure of the provider, the government’s Pension Tracing Scheme is a good place to start.
How recently did you review your pension savings?
One way to avoid losing track of your pension pots is to schedule regular reviews with your independent financial adviser (IFA).
But that’s not the only good reason for keeping yourself up-to-date.
Why you should review your pension regularly
Setting up your pension arrangements isn’t a ‘one and done’ matter. As financial markets fluctuate, tax regulations alter and your own circumstances change, it’s important to be confident that your pension funds are keeping pace with your future needs.
Annual reviews of your pension arrangements (along with any other savings and investments) will ensure you are fully up-to-date with the progress of your financial plan, and highlight any potential issues in time for you to address them. Regular updates with your IFA will help you to remain confident in your financial future and make necessary adjustments.
If you have multiple pension pots, these reviews will give you an opportunity to discuss with your IFA whether consolidating them into a single arrangement would be more cost effective. Your IFA will also look with you at your other savings and investments, to ensure that your portfolio is performing as effectively as it could be, and to make sure you are using all the tax-free allowances available to you each year.
As you approach retirement, talking to your IFA will help you to make important decisions about how and when you access your accumulated wealth to provide you with retirement income. The most tax-efficient options for you may differ, depending on whether you fully retire or semi-retire, whether you are eligible to claim your State Pension, and what sources of income you have.
Many people assume, for example, that, to give them an income, they will start to access their pension funds as soon as they retire. But if you have significant other savings and investments, that’s not necessarily the most tax-efficient choice, now or in terms of inheritance tax (IHT) on your estate later on.
It’s important to understand your tax position, so that you can make the decisions which are most appropriate and tax-efficient for you to avoid unpleasant surprises when you complete your tax return.
A pre-retirement review with your IFA will help you to make decisions about when you can afford to retire, and how to access your funds.
The need to keep reviewing your pension funds doesn’t end once you retire. You’ll want to be confident that your accumulated funds are able to sustain your income for the rest of your life, and to consider how you would be able to fund the cost of later-life care, should you need it.
You can also continue to pay into a pension fund even after you retire, if you have enough spare income. This can also deliver significant tax benefits for you, and for your estate if you are passing on wealth to the next generation, as pension funds (unlike other savings and investments) usually don’t incur IHT.
Regular reviews with your IFA will help you to remain confident about your financial picture, so that you can enjoy a comfortable retirement secure in your financial freedom.
At Talis IFA, we recommend regular financial reviews at every stage of life. We’ll look together at your current circumstances and future goals, and recommend the solutions which best meet your needs. We will only recommend changes to your financial arrangements if this is in your best interests, and will be transparent about our fees upfront. Our advice is completely independent and objective – giving you confidence in our recommendations.
We pride ourselves on offering plain-speaking advice in plain English, helping you to navigate the financial world with greater confidence.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age).
The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits.
site by motley.co.uk