Check pension status to avoid a nasty shock
MILLIONS of Britons have no idea how much income they will get in retirement because they have never requested a state pension forecast and are failing to keep an eye on their private pensions too.
Two new pieces of research show that savers are in the dark about their pension prospects because they are not keeping tabs on where they stand today.
Almost four in 10 say they did not bother to check their state pension forecast before they retired, according to research from specialist retirement advisers Just Group, even though for many it will be their only source of income.
This is a vital step in pension planning as nearly a fifth of those who did check found they would get at least £250 a year less than they expected.
Those who fail to check their state pension in advance are more likely to struggle in retirement as they will have no time to build up more pension to make up for any shortfall.
Stephen Lowe, group communications director at Just, said many wrongly assume they will get the full state pension. “The last thing anyone needs when they retire is the nasty surprise that their state pension is lower than they thought.”
How much people get at retirement depends on their National Insurance (NI) contributions, with 35 years needed to qualify for the maximum new state pension. Those with fewer than 10 years of contributions get nothing.
Lowe urged everyone nearing retirement to request a forecast at Gov.uk/check-state-pension. “This will show if you are likely to receive less state pension than you thought, and give you the opportunity to increase it.”
Options for plugging any shortfall include claiming NI credits for periods out of work, or buying extra pension by making voluntary NI contributions.
Tens of millions also have company and personal pensions, but again, too many are failing to check if they are up to scratch.
Nearly one in four admit they have never reviewed their pensions, while fewer than half check them once a year, according to research from InvestecWealth & Investment.
As a result, many do not know where the pension is invested and how risky their funds are, said Investec’s senior chartered financial planner Faye Church. “So many people invest in the default fund available, then forget about it.Yet there can be a huge difference between performance, which dictates the growth of the pension fund.”
An underperforming fund can inflict outsize damage because the money will be invested for years, if not decades, and subpar returns compound over time.
“If contributing to a pension you should review your funds at least annually,” said Church.
Investec also found that two out of five had less than £75,000 in their pension funds.
The figure was similar for those in the final years before retirement, a time when people need to have built up more funds for a comfortable retirement.