When to review your pension

When was the last time you reviewed your pension? Do you know how much you’ve put aside for your retirement and do you know how well those investments are performing? Writes Paul Beadle, Mouthy Money

A surprisingly high number of people in the UK have no idea how their pensions are doing. EQi’s pension research, carried out by the Centre for Economic and Business Research (Cebr), found that more than a third (35%) of the people surveyed had never reviewed their pensions or retirement plans, which means around 17.7 million Brits don’t know whether they’ll have enough income when they stop working.

According to EQi’s research there are a variety of reasons why so many people don’t review their pension savings. Around one in seven (15%) said they would not know how to review their pension, while 13% felt that the process would be too complicated. More than one in ten (11%) of people surveyed said they plan to review their pensions when they get closer to retirement.

However, leaving it until later in your working life means there is less opportunity to make any changes if you feel your pension isn’t building up a sufficient pot to generate the income you need when you retire.

A healthy 17% of people EQi surveyed said they reviewed their pensions annually, while nearly one in ten (9%) said they reviewed their retirement plans somewhere between once every two years and once every ten years.

Reviewing your pension doesn’t need to be as complex or as time consuming as it may seem. Firstly look out for the annual statements from your pension company, or better yet, contact your provider and see if they have an online platform where you can see the details of your retirement savings, where they are invested, how they are performing and how much you are paying in fees.

If you find you have a lot of pensions scattered about, then it might be worth combining them into a SIPP (Self-Invested Personal Pension ) to make the review process easier, but more about that option later.

So, when and how often should you review your pension and retirement plans?

Every year

We are used to reviewing many of our other financial products on a regular basis, so why not our pension? EQi’s research found that 73% of those it surveyed, or more than 24 million people, reviewed their car insurance annually, while 61% of respondents, or over 19 million people in the UK, reviewed their home insurance policies every year.

And while you can often save tens, or even hundreds of pounds by switching your car insurance, the potential financial benefits from reviewing your pension could be much higher, if you take into account the fees you could be paying on all your pensions and whether your investments are performing as well as you’d like.

Reviewing your pension every year will not only help you see how much you are paying in fees, which is important if you have several pension pots with different providers, it will also give you the opportunity to check whether you should consider making any changes to it, such as paying in more money if you can afford it, or switching the funds your money is invested in.

When you change jobs

Interestingly, EQi’s research found that around one in twenty (6%) people said that switching jobs acted as a trigger for reviewing their pension. Most of us will have a workplace pension into which we will have been automatically enrolled by our employer. Workplace pensions work by taking a contribution from your salary every month, with your employer also making a contribution.

But what happens when you move jobs? If you move onto another full-time position then you’ll probably start up a new workplace pension, leaving your old one dormant. According to EQi’s research, the average worker will have 11 jobs during their career, which could result in an awful lot of forgotten workplace pensions, all of which you will still be paying fees on.

One solution is to combine these old workplace pensions into a SIPP (Self-Invested Personal Pension) which will give you a simple way of monitoring all of your retirement savings in one place, offering you more control about where you invest your money and its performance, as well as more clarity on the fees and charges you’re paying.

A SIPP is also a good solution if you’ve become self-employed as you can consolidate all your previous workplace pensions into it and then carry on contributing into the SIPP, because if you’re working for yourself you won’t have an employer paying into a pension for you anymore.

SIPPs aren’t right for every situation. If you have a salary final pension, for example, you’re best off leaving that where it is. If you are currently employed with a workplace pension, you probably shouldn’t consolidate that into a SIPP because you might miss out on the contributions your employer makes. There are also pensions that have final bonuses and or high exit fees that could make transferring them to a SIPP less attractive, so always check first and talk to a financial adviser if you’re unsure.

When your life changes

Even though it’s a good idea to review your pension regularly, you should always think about it as a long-term plan; an investment that can change and flex along with your life stages and personal circumstances.

When you’re younger and you’re first starting out in work, retirement seems a long way off, but it’s still a good idea to get into the pension habit. In your 20s and 30s it makes sense to invest in pension funds that are designed to provide a good potential for growth, because you’ll have plenty of working years to hopefully build up a good pension pot.

However, if you start a family and have more financial outgoings like a mortgage, or perhaps there is less money coming into your household due to parental leave, you may have to reduce the amount of money you put into your pension or review your plans and switch to funds that offer a more balanced return.

As you get older and start to reach the point at which you begin to think about retiring or taking a lump sum from your pension, which you could do at the age of 55, it makes sense to review your pensions again and maybe change the funds you are invested in to ones that offer less growth potential, but instead provide more stability. This means that the value of your pension is less likely to be affected by the fluctuations of the stock market. For more information, take a look at EQi’s guide to investing in your retirement.

For many of us, not only will our pension be one of the most valuable financial products we have, it will also be the one that will help provide us with the kind of life we want when we stop working. If that’s the case, then surely getting into the habit of checking our pensions in the way we do our savings accounts or insurance policies will be time well spent?

EQi’s research was carried out by the Centre for Economic and Business Research (Cebr), including a survey of more than 2,000 adults by YouGov.