With rising life expectancies, higher retirement ages, and fewer workplace pension schemes, the onus is on individuals to boost their pension savings. Unfortunately, however, too many people treat their pension as an afterthought and don’t save enough for a happy retirement.
In this article, we’ll teach you the most pressing pension tasks to tackle now. From checking your fees to your pots, allowances, and more, let’s kick things off with how to handle lump sums.
Hands off the lump sum
Most pension schemes allow you to take a tax-free lump sum worth 25% of your pot at the age of 55 (this rises to 57 as of 2028). While this can be tempting, it pays to be patient rather than splashing out on an extravagant purchase like a luxury vehicle or holiday.
This is mostly because removing a substantial amount from your pension pot leaves you with less to live off in retirement. It also means you can’t benefit from compound growth, which is where you earn interest on the entire amount of your pension fund, including interest gained, to accelerate growth.
So, it’s understandable that most experts will advise you to leave your pension fund and only withdraw a lump sum if absolutely necessary.
Do you understand your pension fees?
All pension schemes come with management fees that are deducted from your pot annually. A financial adviser can help you understand these fees and switch plans if financially viable. They’ll also tell you whether you’re getting your money’s worth from the fees you’re paying.
Freeing up fees could help you add to your pension pot, or at the very least, receive a better service from your pension providers.
Check on your pension pots
Many Brits pay little mind to their pension savings, particularly since auto-enrolment was introduced in the UK. Because of this, people assume they’re covered for retirement and don’t need to give special attention to their pension, which could be hugely detrimental.
This is particularly important if you’re in your 50s or nearing retirement age, as you might find that you have less available than you thought. At this time, your pension investments will probably start to “de-risk”, too, which is the process of reducing the potential for large losses just before you retire.
The reason is that your pension doesn’t have time to recoup any losses before you withdraw it, so the investments available will be much more limited.
Make sure your pensions are achieving as much as they can for you and tweak your investments if you aren’t happy. Failure to act quickly will mean you have less room to manoeuvre and less money when you retire.
Conclusion
Leaving your pension funds to look after themselves is a nightmare waiting to happen, so it’s important to action the above pension tasks as soon as possible.
At Cedar House Financial, we have the expertise and knowledge to help you get a grasp of your pension and retirement. With advice based on your objectives and personal situation, call our team on 020 8366 4400 or email enquiries@cedarhfs.co.uk for more information.