Stress-testing your retirement savings01 March 2021
The vast majority of workers in the UK are likely to be saving into a pension plan, thanks to workplace pension legislation – employers are now required to provide a pension scheme for their employees, which has meant that millions more people have been put into the pension system since automatic enrolment began in October 2012.
It's interesting to note that until last year, the UK pension market was the second largest in the world, with only the US ahead, at 62% of worldwide pensions assets. In 2020, Japan overtook the UK, representing 6.9% to the UK's 6.8% (source: Thinking Ahead Institute Global Pension Assets Study 2021). The UK market has seen a compound annual growth rate of 4.6% over the last decade, and it is likely that automatic enrolment has played a part in this growth.
The UK pensions market is resilient – despite the challenges we are all facing as the pandemic continues, for many people, pensions remain in place, invested and active. However, the past year has brought into sharp focus for some the importance of reviewing retirement plans, as these for some have arrived somewhat earlier than expected owing to redundancy or changed life choices.
It is easy to forget about your pensions – and most of us have a number of them – old ones just sit there, active ones receive contributions every month, and that's about it. How many of us actually think about how much we are saving for retirement, in whatever form that takes, and whether it will be adequate for our needs when we do stop work? Don't forget the State Pension as well!
Calculating what you have and where it will get you can be complicated, and of course, both pension savings and expected needs in retirement will evolve and change over time. However, it is sensible to take stock of what you have now, whether it's in the right places, and how much it might give you in retirement – a 'stress-test', if you like, for your pension's strategy.
These days, retirement income is likely to come from more than one source, and may include as examples pensions, investments, cash savings, property and more. There's a lot you can do to try to make sure things are as on track as possible for you and your loved ones, such as:
- Making sure your pensions and investments are invested in line with your attitude to investment risk and capacity for loss
- Checking that the plans you hold are competitive in their charging structure – some older plans can be significantly more expensive than more modern ones (but take professional advice before making any changes)
- Having a look at the contributions that you and your employer are making – could you save more? And if you do, will your employer match your increase?
- Using tax-efficient pension and investment allowances each year where affordable and available – for example, the ISA allowance of £20,000 each year and the annual allowance for pensions (normally £40,000 gross pa from all sources but varies depending on your circumstances)
- Checking that the nominations of death benefits on your pension plans are up to date and as you would wish, to make sure that your loved ones benefit in the event of your death
- Check your State pension online here: https://www.gov.uk/check-state-pension
A regular review of your retirement strategy with a qualified professional is a great way to make sure that you are doing all you can for a comfortable older age; some stress-testing now might avoid a lot of stress when you start to consider your options for retirement.
No individual advice is provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899