The Press and Journal (Aberdeen and Aberdeenshire)
Protect your financial future on Pension Awareness Day 2022
The UK is facing a challenge in that individuals are not saving enough for the future. That said, is Pension Awareness Day 2022 (September 15) the right time to be advocating saving more, when bills and inflation are attracting daily comment in all forms of news media?
The simple answer, in our view, is categorically YES. Why? Because with these issues facing many households and businesses today, it’s even more important to consider the longer-term. Take it from us, whose once young children all now have careers or families of their own – time flies! So rather than simply saying we should all be saving more into pensions, let’s look at some simple tips relevant to 2022; not all require financial commitment, but all will bring better outcomes in the long run.
1. Get enrolled.
Since 2012, employers must contribute a minimum of 3% of earnings to workplace pensions, so join up and stay enrolled. If you want to save more than the minimum, many businesses offer extra “matched contributions” on top. For businesses, pension benefits offered to staff has become a core part of recruiting and retaining staff.
2. The State Pension
Modern workforces work more flexibly, take career breaks, go self-employed, etc, so it’s easy to accrue “missing years” of qualifying National Insurance (NI) contributions. You’ll need 35 years of NI for a full State Pension under rules introduced in 2016, so take time to check your NI record every few years by getting a pension forecast at gov.uk/check-statepension. You may be able to top up contributions; if so, it’s likely to be a good investment.
Our research shows that those that remain invested typically do better than those that try to cash out when volatility strikes
3. Keep on top of your admin
Changed jobs a few times, or not kept track of your pensions over the years? A pension adviser can help collate an overall picture for you. There are around £20 billion of unclaimed UK pension pots already – don’t let your savings add to that. Have you made a death benefit nomination on them all? In 2018, Royal London estimated that around 750,000 pension investors in the UK could end up with their pension pot being distributed on death in a way they don’t want1.
4. Don’t wait to get advice
Discussing personal finances is a sensitive topic, and one that most people tend to avoid. In 2020, the Money and Pensions Service suggested around 29 million people don’t feel comfortable talking about money, despite almost half of them admitting they regularly worried about it2. Whether you’re changing job roles, facing a change of marital status, inheriting money, or thinking about the next generation, a review of your pension arrangements is a “must-do”.
5. It’s a long-term play
In 2022, we’ve had the crisis in Ukraine, global market volatility, soaring inflation and rising interest rates. At 7IM, we think the best pension strategy is to stay disciplined and stay invested. A pension should be seen as a very long-term plan. Disinvesting to cash because of short-term market volatility can result in significant long-term losses. Our research shows that those who remain invested typically do better than those who try to cash out when volatility strikes. That’s because the best days in the market often closely follow the worst days. Indeed, 21 of the 30 best days came within two weeks of one of the 30 worst days. As the adage goes, what matters is “time in the market, not timing the market”.
6. Approaching retirement?
Get a plan and review it. Average life expectancy in the UK is 81.65 years and set to climb to 85.48 by 20503, it’s likely you’ll need your pension savings to keep working hard for you for many years after retiring – and cash just won’t cut it. However, simply setting your strategy and leaving it untouched is not a sensible idea either. Your goals might have changed and the risk you are taking with your pension investments may no longer be appropriate. Work with a financial planner that uses financial modelling to “stress-test” your options.
Overall, the key is staying flexible. Everyone’s circumstances are different, and often change suddenly. When they do, it’s important to consult an agile financial planning partner who can adapt to help meet your needs and keep things on track, particularly for those nearing or already in retirement. To speak to us about your financial planning needs, get in touch at andy.bolden@7im. co.uk or elaine. mclachlan@7im.co.uk, or give 7IM a call on 0131 297 3767.
The value of investments can go down as well as up and you could get back less than you invested. Past performance is not a guide to future returns. Investment in funds will not be suitable for everybody and you should make yourself aware of the risks before investing and if you are unsure, you should seek professional advice. Tax rules are subject to change and taxation will vary depending on individual circumstances.
Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority.
1.Source: Association of British Insurers (ABI) May 2020, 2.Source: ftadviser.com/ pensions/2018/02/26/ more-than-750-000-people-may-passpension-to-wrong-person/ 3. Source: Money & Pensions Service 4. Source: United Nations – World Population Prospects