Avoid these pension mistakes in your 40s

Oli West

by , Senior copywriter

at PensionBee

22 July 2021 /  

July 2021

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By the time we reach our 40s, we’re supposed to have life figured out. We’re supposed to have a stable job, a long-term partner and kids, and plenty of money invested away for our retirement. Right? Well, perhaps some people do. But the reality for many of us is probably more along the lines of “I’m winging it,” than “I’m winning it.”

We’re not the best place to provide career and relationship advice, but we can certainly help you put your best foot forward when it comes to your pension. So we’ve prepared the following tips to help you towards a happy retirement.

For more tips, you can download our guide: 7 Pension Mistakes To Avoid In Your 40s.

Don’t leave old pensions scattered around

If you’ve had more than one job, you’ve probably paid into more than one pension. While having several pensions may not be bad in and of itself, it does carry the following risks.

  • With more than one pension to manage, you’re more likely to lose track of your pensions and run the risk of completely forgetting about them by the time you retire.
  • Your pensions will use different strategies to invest your money, which will likely lead to inconsistencies and overlaps that could lead to a poorly balanced investment portfolio and reduce overall growth potential.
  • Your pensions will charge different fees, and some might be more expensive than others. This could result in paying more than you need and erode growth potential.

Top tips

  • Consider combining your pensions into one simple plan. You’ll only receive one statement, and it will be much easier to manage.
  • Contact any old employers to check that you’ve got all your pensions accounted for.

Don’t contribute too little, if you can help it

Most workplace pensions are called ‘defined contribution’ plans. This means that the amount of pension income you’ll receive in retirement is influenced by the amount you contribute (pay in). So contributing more now pays off in the long-term.

Of course, not everyone can afford to contribute a large amount into their pension each month. And it might be tempting to think that there’s no reason to pay in more than the default 5% contribution that was probably automatically set up when you joined your workplace pension. But paying in even just a little more can make a big difference to your future retirement income.

Our pension calculator shows that if a 45 year old with £30,000 in their pension contributed £200 a month until they retired at 67, their pension pot could be worth around £120,731 at retirement. But if they contributed £250 a month (just £50 more), their pension pot could be worth around £139,810 at retirement (nearly £20,000 more). Contributing £300 a month could result in a pension pot worth around £158,887 (nearly £20,000 more again).

*Doesn’t include workplace contributions, State Pension or taking a tax-free lump sum at 55.

Top tips

  • Take a look at the value of your current pension pot(s).
  • Use a pension calculator to discover if you’re on track for your desired retirement income.
  • If you’re not on track, make a plan to pay more into your pension. If you’re a member of a workplace pension, you might be able to take advantage of your employer paying in more too.

Don’t forget about lost pensions

As we get older and our list of previous jobs grows longer, the risks of our old pensions becoming misplaced and forgotten increases too. And this is no trivial matter. It’s estimated that more than 1.6 million pension pots worth £19.4 billion are ‘lost’. That’s the equivalent of £13,000 per pension - or a year’s worth of pension drawdowns, to sustain an essential lifestyle.

Fortunately, lost pensions can be rediscovered. And the sooner you act, the quicker you can combine it into your main pension which could make your saving more efficient.

To locate any lost pensions, take the following steps.

  1. Contact your former employers and ask them what pension schemes they might have had set up when you worked there. Provide your employee or payroll number, if you can, to speed up the process.
  2. Contact any pension provider whose name rings a bell, and ask them to check your records. You’ll probably need to provide your National Insurance number and date of birth.
  3. Use the government’s Pension Tracing Service to find the names and contact details of your pension providers.

And if you’re not sure whether you might have a lost pension, you can use our own Do I have a pension? tool to find out.

Top tip

  • Got a ‘lost’ pension that’s on its own? You could consider combining it with your existing pensions. This could mean better returns, lower fees and make saving for retirement much easier.

Interested in four extra pension tips? Give yourself the best chance of a happy retirement and download our free guide: 7 Costly Pension Mistakes To Avoid In Your 40s.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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