If you’ve recently got a new job, you might have a new workplace pension to go with it. Money from a workplace pension could make up a significant part of your income in retirement. So it’s important that you take the time to understand and keep track of any pension pots that you have. Thinking ahead to retirement could also help you work out if you're contributing enough to your pension to fund the lifestyle you want in the future.
In this article, we’ll remind you of some of the basics of a workplace pension and considerations for keeping track of any past and present pension pots you have. Plus, tips to think about to help you get closer to the retirement you want.
Understanding the basics of your workplace pension
Let’s begin with the basics. When you start a new job, your employer is required to automatically enrol you into their workplace pension scheme if you meet certain requirements. These include being aged between 22 and the current State Pension age, earning a minimum of £10,000 per year and mainly working in the UK.
Every time you get paid, your employer pays into your pension. Most schemes require you to make a contribution too, which is automatically taken from your salary before you’re paid. Some employers might offer to match your contribution as an incentive for you to save more.
Any contributions you make may qualify for tax-relief (a reduction on the amount of tax you have to pay) from the Government. How this works and the value of any tax relief depends on the type of workplace pension you have and your individual circumstances, which may change. The Government’s MoneyHelper website has a helpful guide to understanding tax relief on your pension contributions.
The money in your pension is invested in an investment fund or funds, with the aim of growing to provide you with an income to be used later in life. However, the value of your pension can fall as well as rise and isn’t guaranteed. You may get back less than has been paid in.
How to keep on top of your workplace pension
Keeping on top of your workplace pension might seem challenging. But considering a few simple steps could help you get off on the right foot:
- Activate your online account – you don’t need to be especially tech-savvy these days to keep on top of your pension. It’s likely that your pension provider offers simple ways to keep track of your contributions and monitor your pension’s investment performance online or via an app.
- Keep your details up to date – if you’ve changed email addresses, moved house or got a new phone number, you’re probably used to updating your details in a variety of places. Don’t forget to add your pension to the list of accounts you need to update. Doing so could make sure you maintain access to your account, and are notified of any important changes of information from your provider.
- Consider nominating a beneficiary – most workplace schemes will allow you to nominate who you would like to benefit from your pension pot if you pass away. Depending on the scheme rules, beneficiaries could receive a lump sum and/or an income. Any nomination you make can be changed if your circumstances change. MoneyHelper have a helpful page to learn more about what happens to your pension if you die.
- Learn about how your funds are invested – taking time to understand how the money paid into your pension is invested could help you feel more connected and in control of your pension. Your provider should have fund factsheets and key information documents that you can access to find out more about how your money is invested.
You can find impartial, trusted online resources to help you understand the unique aspects of pension saving. Alongside the Government's Moneyhelper website, the charity Citizens Advice is also a useful source of impartial guidance on workplace pensions. Your employer may also have a workplace scheme adviser you can talk to.
Do you know where all your pension pots are?
If you've moved jobs over the course of your career, it’s likely you could have other workplace pension pots. Keeping track of these is important, as it could give you a clearer picture of your total potential income at retirement, and how much you need to be saving to achieve your goals.
As long as you’ve kept your address details up to date with each provider of your personal or workplace pension pots, you should receive a pension statement for each pot, each year. If you think you have a pension somewhere from an old job but are struggling to track it down, the first point of contact should be your previous pension providers. If you're not sure who they are or how to contact them, you can get in touch with your former employers to find out. Alternatively, the Government’s pension tracing service can help you locate lost pots.
You can find out more in our guide about how to find lost pensions.
Considerations for managing multiple pension pots
If you do have more than one pension pot, you might want to consider bringing your pots together in one place. This could make it easier for you to manage and view your savings. But remember, combining a pension may not be the best option for you. You may lose features, protections, guarantees or other benefits when you move from one scheme to another – so make sure you compare products before combining.
Any new funds you move your money into will have their own set of risks that will be detailed in the fund information available to you. It’s up to you to decide if this is the right decision for you. If you’re not sure, speak to a financial adviser. You can find an adviser through MoneyHelper – there’s likely to be a charge for financial advice.
As with all types of investing, it's always good to keep in mind that the value of your pension pot may fall as well as rise and the final value of your pension pot when you come to take benefits may be less than has been paid in.
For other considerations of what you could do with multiple pension pots, our article shares some things to think about.
Don’t forget about the State Pension
If you’re eligible for the Government’s State Pension, this could be a valuable addition to your income at retirement. Being aware of how much you could get can give you a clearer picture of what sort of lifestyle you can afford in the future.
The amount you could receive is dependent on your National Insurance record and your own personal circumstances. You can check your State Pension forecast on the Government’s website to see how much you could receive, what age you can claim it, and if you could improve it by paying voluntary National Insurance contributions.
Getting closer to the retirement you want
If you've crunched the numbers and found that your current contribution level won't get you to the retirement lifestyle that suits your goals, don't worry. Most pension schemes offer you the flexibility to voluntarily save more towards your retirement.
You could choose to increase your own contributions or take part in a salary or bonus 'sacrifice' scheme, if your employer makes this option available to you. With salary sacrifice, you agree to give up some of your future pay in exchange for an employer pension contribution. Salary sacrifice reworks your pay in a more tax-efficient manner, at no additional cost to you or your employer, and can help generate higher pension contributions or higher take-home pay as a result. Note that the value of the reduction in tax and National Insurance will depend on your individual circumstances and could change.
Make sure that whichever path you choose, you can afford to make additional contributions to your pension.
Paying close attention to the fund(s) your pension is invested in and how it works is also important. The performance of the funds will determine how much your pension will grow – or fall – in value, and therefore how much money you might have for retirement. This could make the difference between having a comfortable or more moderate standard of living in your later years.
Some people choose to put their money in higher-risk funds with an aim of receiving potentially higher returns. Others might be more risk-averse and want their money to be invested in funds that are considered to be lower-risk. However, the value of your investment can fall as well as rise and isn’t guaranteed – you could get back less than you’ve paid in.
You should double check with your employer which scheme and fund you’re invested in. If it’s not matching your values or appetite for risk, you could consider switching. However, you should speak to a financial adviser before making any decisions.
Keep your pension pots in order
By keeping your pension pots in order, you could have greater control over your finances and a clearer insight into how much savings you have. This can help you work out how much more you might need to save to support your desired lifestyle in the future. By taking these steps you could feel more prepared for your later years.
Your employer might have a workplace scheme adviser or a regulated professional who can walk you through what you can do with your pension to help meet your financial goals. You can also find a financial adviser on MoneyHelper.