Pension Challenge
Let’s face it, pensions can be a headache, but the thing is, we all know we need one to secure a comfy future. That’s why, we’ve done away with the confusing jargon and tried to inject a bit of fun to the topic. So, grab a cuppa, settle in, and let's get this challenge done…
Challenge 1. Find out how much you’ve got in your pension?
This may seem like a simple question, but many people don’t know how much they’ve got in their pension, or that their employer contributes some money too.
Most of us with a workplace pension will have what’s called a ‘defined contribution’ pension. This means the amount of money you have in your pot depends on how much has been paid in and how your investments have performed.
You should be able to find out how much you have in your pension on your pension statement or by logging into your online account (if you have one). If you don’t have an online account, or can’t find your log-in details, speak to your HR department.
For defined contribution pensions, the minimum amount you have to pay in is 8% of your salary. This is made up of a 5% contribution from you and a 3% contribution from your employer. But that’s the minimum.
A lot of employers will pay in more than the minimum and many may match or even double your contributions – so make sure you get as much in your pot as you can.
The more, the merrier, they say.
If you have a ‘defined benefit’ pension - often called ‘final salary’ or ‘career average’.
Your employer pays you a guaranteed income for life in retirement, and its value is determined by how long you’ve been a member of the employer’s scheme and the salary you’ve earned when you leave or retire.
Challenge 2. Gain control of any forgotten or old pensions
Somewhere out there, in the eternal and infinite cosmos, or a small desk drawer (the one at the top that’s usually reserved for the things too insignificant and important), is a pension. Or at least the details of one.
Maybe you’ve misplaced them. The name of the provider, or the pension account number.
Well, don’t beat yourself up. It’s easier and more common to lose a pension than you may think. Even a few of those small and forgotten pension pots can add up and make a big difference to your savings.
So where to start? It all depends on how much you already know about your lost pension. Every pension provider is obliged to send you an annual statement, so it’s worth going through the dark corners of your house to find that old paperwork you’ve stuffed away.
If you can find out the name of your pension provider, get in touch with them directly. If you don’t know the name of your pension provider, try getting in contact with your previous employer and let them know when you worked there. They may be able to help and give you your pension provider’s details, so that you can get in touch with them.
If you don’t have any of this information but sure you have another pension out there, don’t worry - all is not lost. The government has a free service called The Pension Tracing Service, which can help.
Challenge 3. Take stock
Once you’ve completed challenges 1 and 2, you should be able to work out how much you’ve saved up so far. Get on excel, create a spreadsheet (if that’s your thing) or open notes, even use a pen and paper, and write this figure down.
If you have other savings/investments, property, other income, etc that you’re gonna use in retirement – include a separate figure for this.
Don’t forget, you may be entitled to the State Pension too - if you’ve paid enough National Insurance contributions – so be sure to include this amount too.
The maximum State Pension you could get is £230.25 per week. Get your forecast now.
Challenge 4. Work out how much pension you’re going to need
Okay, not an easy equation to answer, but we’ve got some handy tips to help.
A good way to work out how much you may need is to jot down all your expenditures now and use this as a guide to create a plan for how much you will need in the future.
Group your expenses into different categories, like the essentials, subscriptions, travel. All that kind of stuff.
The essentials will include things like your mortgage, rent, utilities and food. Bear in mind, when you get to retirement, some of these costs may go down, or you may not need to pay out for some of them anymore. For example, you may be mortgage free, or you may not spend as much on commuting if you’re no longer working.
Once you’ve worked out your everyday expenses, you can start to factor in the fun things you want to do in retirement – things like holidays, trips, and treats. Ask yourself, are you on course for a retirement that covers all your needs?
One great step to working out a picture-perfect pension is to use the Retirement Living Standards as a barometer. The Standards provides a rough guide for what income you may need to attain various standards of living for both single people and couples.
Challenge 5. Ask yourself, is this going to be enough?
Hopefully, by now, you know how much you’ve got and you have a good idea of how much you’re going to need, so how does this fare?
Are you headed in the right direction? Is your retirement party running to schedule? Or do you need to make some tweaks to your plan?
If you’re on track, well done - give yourself a big high five! If you’re not on track, don’t worry, there are things you can do to start boosting your pension savings. Stay with us:
We can’t reiterate this enough - the earlier you start, the more time your money has to grow—and compound interest is like magic for your retirement fund, so don’t put it off, jump right in.
If your employer offers a match, grab it! It’s free money.
Try bumping up your contributions bit by bit—maybe every time you get a raise or bonus, send a little more to future you. The minimum amount you have to pay into your pension is 8% of your salary, but The Living Wage Foundation recommends aiming for at least 12% to reach a more comfortable standard of living. Remember, you’re not paying all of this, 5% comes from you and 3% from your employer.
Don’t be shy about checking in on how your investments are doing. If they’re not performing as well as you need them to, they might need shaking up a bit. For example, you could invest your pension more adventurously if you’re younger, with the aim this will grow your pot more in the long-term, because you have a longer time to ride the ups and downs of the stock-market. Remember though, investments can wobble and while we hope for gains, nothing’s guaranteed.
Challenge 6. Get your beneficiary form up to date
You can’t usually leave pension savings in your will, so you need to make sure you have nominated who you would like to receive your pension if you die. This lets the Trustees know (those responsible for making sure that a pension scheme is run properly) about how you want your savings shared.
You can choose family members or close friends (and it can be more than one person), but make sure you keep details of your beneficiaries up to date.
Usually, the Trustees will follow your explicit instructions, but if you don’t name anyone it may be up to the discretion of the trustees as to whom the value of your pot is paid. If your form is out of date, your savings could end up going to someone you’d rather they didn’t!
You should be able to nominate a beneficiary via a form from your pension provider. If you’re not sure where to find the form, ask someone from your HR or pension team.