How to future proof your pension pot
Now is a great time to assess your finances
BY TRICIA PHILLIPS NOW the biggest shocks of coronavirus are hopefully behind us, many of us will be assessing where we are in life. The pandemic brought huge change – and underlined the need for people to build a solid financial foundation.
A pension is one of the largest assets many of us will build in our lifetime and so it’s a crucial starting point when getting your finances in order.
We’ve teamed up with Robert Cochran, pensions expert at Scottish Widows, for his top six tips to help you to prepare for your financial future. Review your pension contributions You may have been furloughed or your income may have dipped during lockdown, or maybe you’ve decided you need to put a bit more away so you can have a more comfortable financial future ahead. If so, consider reviewing how much you are paying into your workplace pension.
Remember, what you put in is topped up by your employer and the Government via tax relief. Employers will often match, or even exceed, your contributions beyond the minimum statutory level.
This also applies to furloughed workers thanks to the Government’s coronavirus job retention scheme.
However, you may see a dip if your employer does not make up the difference between your full salary package and the Government scheme.
Small changes in monthly contributions can make a huge difference to your final retirement pot, especially if you are a younger worker and have years for investments to grow. Track your yearly pension statement These paper slips that come through once a year should definitely be filed away and kept.
A pension statement lists everything you need to know about the state of your pension pot – which is also why it can seem bewildering.
If you are unsure about where to look, start by keeping track of these three things: the fund value, the investment performance and the forecasted retirement income. Looking at the overall value of your pension pot will help with planning and keeping track of the charges you’re paying over time.
Secondly, understanding where your money is invested and how it is performing can inform your decision
Compound interest helps pension funds to grow significantly over time
on the best funds to meet your financial objectives. And lastly, taking stock of the projected retirement income section will allow you to see if you are comfortable with this amount to fund your future.
People with a Lloyds Bank, Halifax or Bank of Scotland bank account can also see their retirement savings in their online banking web pages and can view their pension whenever they log in.
Don’t just start saving and hope for the best. Keep an eye on how your fund is doing and then you’ll have an idea if it’s on track to fund the retirement your desire. Consider investing For those who can afford to keep contributing to their pension or are now lucky enough to have some spare cash from, say, reduced commuting costs due to working from home, there are benefits to investing at this time in particular.
Buying “units” in a pension fund when the market is cheaper can work well in the long run if the value of the units goes up.
More importantly, with a longterm investment such as a pension, you should aim to continue building your fund as you normally would.
You will benefit both from the tax relief mentioned before, as well as compound interest. This is the interest earned on previous interest that helps pension funds to grow significantly over time. Review where your money is invested It’s a good idea to know where your money is invested and whether it’s the right fund choice for you. Even though now may not be the best time to make significant changes to your investment plan, it is an opportunity to get to grips with your financial
future. Workplace pension providers will invest your money in a default fund if you can’t or do not want to make your own investment decisions. If you want to take a more active role, you choose the types of funds you invest in, which can vary depending on your risk preference asset type, investments in geographical locations and so on.
Avoid unnecessary scheme fees You should aim to review your pension plan/plans on a regular basis as various factors could impact the fees you are paying to your scheme.
If you change jobs frequently, for example, you may be registered to several pension schemes and some could be charging higher fees than others.
It’s important to compare and consider consolidating these different pension pots into one if it results in providing bettter value for money. But do be wary of any guaranteed benefits you may be
Frequent job changes can mean that you’d be better off by consolidating your pensions
giving up and any costs involved in transferring.
Be aware of the common pitfalls Unfortunately, pension scams are on the rise in the UK and could be a threat to your retirement savings.
Scammers use situations like the market uncertainty caused by coronavirus to take advantage of people’s worries and confusion. Make yourself familiar with the tell-tale signs to avoid the possibility of losing your lifetime’s savings.
This normally starts with an unexpected call, email or text from someone claiming to be your provider or a Government organisation.
As a starting point, ask yourself the following: Is this offer too good to be true? Do I recognise this investment asset? Why do I need to move money over the phone or act quickly?
Be savvy to some of the warning signs and never give out your personal information.
If in doubt, put the phone down and contact your pension provider on a trusted number – preferably from another phone device.