01 November 2024
Monday 4th November marks the beginning of the Money and Pensions Service’s Talk Money Week. This year’s theme is ‘Do one thing’ – encouraging everyone to take a single, impactful step towards better financial health.
Chris Flower, Chartered Financial Planner at Quilter Financial Advisers, says if you do one thing for Talk Money Week, make it checking your pension statement to ensure you are on track for a comfortable retirement.
Why check your pension statement?
Understanding your pension is crucial for securing your financial future. By reviewing your pension statement, you can assess whether you are saving enough to meet your retirement goals. This simple action can provide peace of mind and help you make informed decisions about your financial planning. Chris Flower says:
“Checking your pension statement should be a high priority to ensure that you are fully aware of the income you’re on track to secure once you have reached retirement age. Many people disregard these statements, usually not giving them more than a quick look, but regularly reviewing these statements is a vital task to ensure you are financially stable for later life.
“Pension statements provide you with key information about your retirement pots, such as how your investments have performed, the fees you are paying on the pot, and your overall income once you retire.
The PLSA’s Retirement Living Standards indicate that a comfortable retirement requires a single person to have an annual income (gross of tax) of £43,100 per year.
“It isn’t uncommon for a pension fund to experience short-term volatility, but if this proceeds to become a longer-term issue, you may want to consider re-evaluating your investments.”
How to determine if you are saving enough
To determine if you are saving enough for retirement, start by calculating your retirement needs. Chris Flower says:
“Estimate how much money you’ll need, considering your desired lifestyle, expected expenses, and any additional sources of income. Next, review your current savings by looking at your pension statement to see how much you’ve accumulated so far.
“Compare this with your retirement goals to assess if you’re on track. Finally, use online tools like pension calculators available on financial websites to project your future savings and ensure they align with your retirement needs.”
Choosing the right fund
Selecting the appropriate investment fund is essential for maximising your pension growth. Consider factors such as your risk tolerance, investment horizon, charges and the performance of different funds. Chris Flower says:
“Most pension schemes will put you in a default fund if you do not make an active selection, but it is important to check this is suitable for your needs.”
If you are unsure, seek advice from a financial advisor to help you choose the best option for your circumstances.
The impact of the recent budget
The budget introduced changes to how pensions are treated for Inheritance Tax (IHT) purposes, which will come into effect from April 6, 2027. Chris Flower says:
“One key aspect of this change is that passing on unused pension funds to a spouse or civil partner will remain exempt from IHT. However, payments to other individuals, such as children, will be included in your estate for IHT.
“Given the new IHT implications, it is imperative to review and, if necessary, update any existing expressions of wishes to ensure your pension goes to the correct beneficiary. If you do not have an expression of wishes in place, now is the time to complete one. Seeking financial advice is crucial to ensure that your wishes are clearly documented and that your beneficiaries are aware of the potential tax implications.
Consider Salary Sacrifice
One effective way to enhance your pension savings is through salary sacrifice. Chris Flower says:
“This arrangement allows you to contribute a portion of your pre-tax salary to your pension, reducing your taxable income and increasing your pension pot. Some employers may opt to put their National Insurance saving into your pension, but they are not obliged to do so. Speak to your employer to see if this option is available to you.”
Take Action
Talk Money Week is the perfect opportunity to take control of your financial future. By checking your pension statement and making necessary adjustments, you can ensure you are on the right path to a secure and comfortable retirement.
