When it comes to pensions, having one in place is only the starting point. The more important questions are whether you are contributing enough, making the most of the available tax benefits, investing appropriately and keeping your pension aligned with your goals.
We speak with clients at every stage of their working lives and financial journeys. Everyone’s circumstances are different but there are certain questions that come up time and time again. With the pension tax deadline approaching, now is a particularly good time to review your arrangements.
Here are five of the questions we are asked most often:
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AM I MAKING THE MOST OF THE TAX RELIEF AVAILABLE TO ME?
One of the biggest advantages of pension planning is the tax relief available on contributions. Depending on your circumstances, contributions can qualify for income tax relief at your marginal rate. This makes a pension a highly tax-efficient way to save for retirement.
However, many people don’t make full use of the relief available to them. The tax deadline can be a useful prompt to review your arrangements. How much you have contributed during the year and whether there is an opportunity to make an additional contribution.
It’s not simply about paying more into your pension. It’s about understanding what you can contribute, what tax relief you may be entitled to and how this fits into your wider financial plan.
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AM I CONTRIBUTING ENOUGH TO ACHIEVE THE RETIREMENT I WANT?
Having a pension doesn’t necessarily mean you are on track for the retirement you want. The important question is: what income will you need in retirement, and is your current pension fund likely to provide it?
Your desired retirement lifestyle, planned retirement age, existing pension value, contribution levels and investment returns will all influence the outcome. A relatively small difference in contributions over a long period can have a significant impact on the eventual value of your fund.
A pension review can help you understand where you are today, where you want to get to and whether there is a gap that needs to be addressed. Retirement planning isn’t just about your contributions, the focus should be on the income you want to achieve at retirement.
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IS MY PENSION INVESTED IN THE RIGHT WAY FOR ME?
Your pension could be invested for decades, so how it is invested matters. There is no single investment strategy that is right for everyone. Your attitude to risk, capacity for loss, age, financial circumstances and, importantly, the time you have until retirement should all be considered.
Someone with 25 years until retirement may have a very different investment approach to someone who plans to retire in five years. Your investment strategy should reflect your circumstances and goals rather than simply being left on autopilot.
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DO I HAVE OLD OR MULTIPLE PENSIONS THAT I SHOULD REVIEW?
Changing jobs or careers can often mean accumulating several pension arrangements over the course of your working life. It is surprisingly easy to lose track of old pensions or simply leave them where they are without reviewing whether they remain suitable.
Bringing your pensions together may be an option in some circumstances, but consolidation is not automatically the right answer. Charges, investment options, benefits and the terms of each existing arrangement all need to be considered.
The first step is understanding exactly what you have. This can be time consuming but is necessary and can be very beneficial.
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IF ANYTHING CHANGES IN MY LIFE SHOULD THAT CHANGE MY PENSION STRATEGY?
Your pension strategy shouldn’t remain static while your life changes around it. Like any element of a financial plan, many factors can impact it. A new job, salary increase, marriage, children, inheritance, starting, or selling a business or a change in your planned retirement age can all affect your financial goals and priorities.
This is why regular reviews are so important. They provide an opportunity to step back, look at the bigger picture and make sure your pension remains aligned with where you are now – and where you want to be in the future.
NEXT STEPS
A pension is more than a pot of money for retirement. It is an important part of your overall financial plan, and the right strategy will change as your circumstances and goals change. With the tax deadline approaching, now is a good time to ask yourself these 5 questions. Then consider where your pension strategy is heading.
At Life Goals, we’d be delighted to help you review your pension. We’ll help make sure it is working towards the retirement you want. We can look at where you are today, where you want to be and the steps that can help connect the two. Just get in touch if you’re ready to connect!
