It’s an inescapable fact that things are getting more expensive right now. Whether we’re talking the fuel in your car, or maybe heating your business or home, we’re all paying more attention to our monthly outgoings.
And there are signs many are applying this more cautious approach to what we set aside for the future.
According to a survey from the Pensions and Lifetimes Savings Association, worries about the cost-of-living crisis are starting to affect people’s saving habits. One in five are considering reducing pension contributions, while a fifth are asking about early access to their schemes after age 55.
While tempting, these kinds of actions, for a relatively small short-term gain, can ultimately mean greater problems in the long run, leaving you with less in the overall retirement pot.
Every penny counts and, when you’re thinking about your pension, it’s important to get the most out of what you have. With Christmas just around the corner – a traditional time to take stock – we thought we’d look at some things you can do to ensure you’re maximising value.
Keep tabs of the lost pensions
Incredibly, across the UK there are almost three million pension pots classed as ‘lost’ – that is, not currently matched to their owners.
According to research from the Pensions Policy Institute (PPI), in the last four years the value of these ‘lost’ pensions has shot up to a staggering £26.6 billion – a rise of £7 billion.
The increase can be put down to several things: from more people moving jobs to people automatically deferring their schemes. Also, while auto-enrolment has led to a welcome increase in the uptake of workplace pension schemes, it’s also meant there are some policyholders who aren’t as engaged with their pensions. PPI has warned that without further action there could be a “new wave of deferred pots by the time members reach retirement”.
So, what sort of damage could this have on retirement savings?
In its research note, Lost Pensions; what’s the scale and impact?, the PPI estimates the value of the lost pots at £9,470. So, what sort of damage could this have on retirement savings? PPI estimates that it could mean an average of £446 per year for someone reunited with their lost pensions (assuming a draw-down rate of 3.5% after taking a 25% tax-free lump sum), although this would depend greatly on the value of the pot in the first place.
Of course, lost doesn’t necessarily mean lost forever. Many of these pots will be reunited with their owners before they retire (it’s natural that the closer we get to retirement age, the more thought we’re likely to put into what we have saved and where). However, the report highlights that in that between-time, there could still be an impact on your savings.
It warns: “Members can lose potential value from lost pots, even after they are reunited, as they temporarily forgo the opportunities of choosing newer products, more appropriate investments, or consolidating pots to take advantage of lower fees, particularly for pots predating automatic enrolment, which may be more expensive.”
The good news is that, reuniting someone with their old pensions is straightforward. Basic steps include retracing your career steps, looking for gaps in your pension history, checking back through old papers, and ensuring your details – especially addresses and account numbers – are up-to-date.
At Sutherland Independent, this process of tracking down previous pensions is an important part of the initial fact-finding conversations with new clients. But we’re also here along the way to help you.
Finding your previous pension providers is very easy using the government’s Pensions Tracing Service.
All you need to do is enter the name of your employer(s), which will give you pension scheme providers’ details. You can pass these to us and we’ll gather the relevant information from the provider on your behalf.
National Insurance contributions
Another area that’s worth exploring is ways of maximising what’s in your state pension. There’s been a great deal of publicity recently about checking whether your National Insurance (NI) contributions are up-to-date. With changes made back in 2016, the amount of state pension you receive will depend on how many qualifying years of NI contributions you’ve made.
You can usually pay voluntary contributions for the last six years. And, depending on your age, it may also be possible to go further back. You can find out more about whether voluntary contributions will increase your final entitlement by contacting the Future Pension Centre, or speak to us about the next steps.
A final thought… looking beyond ourselves
One piece of feedback we’re always very pleased to hear from our clients is that they appreciate us sharing these ‘value adds’.
Our goal is always to help clients maximise their wealth – whether that’s investing in the right areas, or ensuring they’ve filled in all the blanks. If you’re a client of ours, we do what we can to help you see the bigger picture.
Of course, part of that bigger picture – particularly at this time of year – is considering the world outside the relative niche of pensions and investment. As we mentioned at the beginning of this article, the cost-of-living crisis is impossible to ignore. So, as much as this article is about looking after your own finances, we also want to take this opportunity to highlight what we’re doing for others who need help.
This year we’ve chosen Edinburgh NE Food Bank as our charity partner, which helps thousands of families and individuals who find themselves caught in crisis. Over the next year, our staff members will be volunteering at the charity, helping sort food as it distributes supplies to people living in Leith and the surrounding area. Since 2014, the charity has distributed 263 tonnes of food, helping more than 28,000 people – giving nearly 8,000 children meals.
If you’re interested in finding out more about the charity, please visit www.edinburghnefoodbank.com.
And of course, we’d also like to wish you a very Happy Christmas!