How pension aware are you?

Pension Awareness Week took place from 9–13 September 2024

Many people have a very limited understanding of their pensions. This makes it hard for them to plan their long-term finances. They may not know where to start when thinking about whether their pensions will be enough to live on. Worse still, they may be vulnerable to pension scammers ready to strip them of their retirement savings.

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How pension aware are you and your people?

Watch our Pension Awareness video for more help on pension planning

Our five questions will reveal how pension aware you are. Try them for yourself…

Question 1 – Do you know where all your pensions are?

These days it’s rare for someone to spend their entire working life with one employer. Most of us work for a series of employers during our working life and build up several pensions.

When you change jobs, those old pensions don’t disappear. But it’s so easy to lose track – it’s quite common for people to lose their pensions because they don’t keep in touch with their old schemes.

There are lots of things you can do to make sure you keep in touch with your old pensions:

  • Keep all those letters and emails that you receive about your pension. Store them all in one place so you can refer back to them in the future
  • Notify all your past pension providers whenever you move house
  • Track down any old pensions you may have lost touch with using the GOV.UK Find pension contact details service.

Question 2 – Do you know what type of pension(s) you’ve got?

There are two main types of pension in the UK:

  • Defined Contribution (DC) pensions
  • Defined Benefit (DB) pensions.

Most employers in the UK today provide DC pensions. However, you may be building up a DB pension if you work for a public service, or for one of the decreasing number of private sector employers that still offer them.

What is a DC pension?

With a DC pension, you grow your own retirement savings pot. You and your employer can pay into it and the money is invested on your behalf. Together, your contributions and investment returns will build up in a pot that you can use to give you a retirement income.

You can usually choose how your pension pot is invested. Or you can rely on the default choice that the scheme has made for you. Just as the value of investments can go up and down over time, so can a retirement savings pot. But over the long term, it will hopefully grow to give you a sum of money that’s big enough to provide the retirement income you need.

What is a DB pension?

A DB pension builds up a regular income that will be paid to you throughout your retirement, until you die. The amount of pension you receive will depend on your salary while you were in the scheme and the number of years you spent building it up.

Once you leave an employer, you can no longer build up that particular pension. However, it will usually grow in line with inflation (subject to limits) before it is paid to you, and may also increase each year after you retire.

If you live to a very old age, you’ll get great value from a DB pension. The guarantee that you will receive your pension for the rest of your life can be very valuable.

If you don’t know whether your pensions are DB or DC, you can always ask your current or previous employer, or contact the pension scheme directly. They can provide you with a statement of your benefits.

Question 3 – How much State Pension will you receive?

For the year beginning in April 2024, the new full State Pension is around £11,500 per year. 

You earn your State Pension by building up qualifying years on your National Insurance (NI) record. One way to add a qualifying year is to pay NI contributions on your earnings. You can also build up qualifying years in other ways, for example if you receive certain state benefits. 

To qualify for a State Pension, you need at least 10 qualifying years on your NI record. And to get the new full State Pension, you need at least 35 qualifying years. 

The good news is that as long as you’ve earned enough to pay some NI in a given tax year, you’ll have built up some State Pension. 

The State Pension age is currently 66, but it varies depending on when you were born. It’s currently 68 for anyone born after 6 April 1978. This may change in future.

You can get a State Pension forecast and details of how you might be able to increase it from GOV.UK’s Check your State Pension forecast service. This will also tell you what your State Pension age is. 

Question 4 – How much money will you need to stop work?

It’s hard to work out how much pension savings you’ll need to stop work. That’s mainly because it might be a long way into the future. It can also be hard to imagine your life in retirement and how much money you’ll need.

However, it’s a good idea to think about this now. Having a target for your pension saving can help you feel more in control of your future, even if stopping work is a long way off for you.

There are different ways to approach this:

Plan for the necessities

Start by noting down everything you might need to spend your money on once you’ve retired. You can find a useful tool to help with this on the Money Helper website . This tool will remind you to include everything from TV licence fees and insurance to Christmas presents.

Decide on the retirement lifestyle you want

There’s more to life than necessities. Think about how much extra money you’ll need for the retirement lifestyle you’d really like. The Pension and Lifetime Savings Association (PLSA) has defined three levels of retirement lifestyle. Take a look at PLSA’s Retirement living standards.

Work out what proportion of your salary you’ll need

A useful approach is to work out the percentage of your current salary that you’ll need in retirement. MoneyHelper suggests these salary percentages as retirement income:

Salary range (per year) Percentage of salary needed in retirement
Up to £12,199 80%
£12,200 to £22,399 70%
£22,400 to £31,999 67%
£32,000 to £51,299 60%
£51,300 and above 50%

Based on research by the Department for Work and Pensions (DWP), 2024

Question 5 – Are you on track for retirement?

It’s great to know where all your pensions are and how much money you might need, but how do you make sure your pension savings are on track for the retirement you want? 

Your pension schemes can help you to understand what each one might provide for you when you reach retirement age.  

  • Ask each of your pension schemes for a pension statement or forecast
  • Find out whether the scheme offers online tools that you can use to predict your retirement income

When you’ve gathered information for all your pension schemes, add them together – along with your State Pension forecast. Compare the total with your target. This will help you see whether you’re on track. If you’re not on track, then you may need to think about saving a bit more in the future, or perhaps changing your retirement plans and working a little longer.

MoneyHelper’s Pension calculator can help bring all your pension information together. It will also show you the effect of paying a bit more into your pension. 

What can individuals do next?

Pensions are complicated, even for financial experts. If you’re still unsure of the answers to any of these questions, ask your employer, pension scheme trustees or trade union for more pension information. Or get free and impartial help from MoneyHelper.

What can organisations do next?

First Actuarial can help you improve financial wellbeing across your workforce with our financial wellbeing programmes. We work with individuals to help them make sense of their money and their pensions, so they can plan for a comfortable and worry-free retirement.

Am I vulnerable to pension scammers?

Your pension savings are held securely and will only become vulnerable if you’re approached by a scammer.
The scammer will present you with an ‘opportunity’ that may involve:

  • Releasing money from your pension quickly with the promise of an attractive return, or
  • Transferring your pension to somewhere else, with the claim that this will give you more money in retirement.

As soon as they have your money, they’ll vanish without trace, and it will be almost impossible to get your money back.

The good news is that pension scammers cannot get hold of your money without your active involvement.

Watch our short video to learn how to spot a pension scammer.

Without a shadow of a doubt, people now have a better understanding of finance and their pensions. After attending a webinar or a one-to-one, people are much better informed. First Actuarial provides guidance that we wouldn’t be able to give. They’re experts in their field.

– Julie Cridland, Employee Experience Lead, Aster Group

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