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Is your pension pot on track to give you a comfortable retirement?

Philly Ponniah

by , Chartered Wealth Manager and Financial Coach

at Philly Financial

25 Oct 2024 /  

A woman walking barefoot on train tracks.

Your retirement might seem far off but understanding if your pension pot is on track can provide peace of mind and clarity to know you can achieve the kind of retirement you’d like. Here are five steps you should consider to help put yourself in a position that your future self will thank you for.

1. Visualising a happy retirement

First things first: what do you want your retirement to look like? Close your eyes and imagine it. Are you traveling the world? Spending quality time with family? Or perhaps pursuing hobbies you’ve always been passionate about? Consider how your days, months, and years will look. Will they be drastically different from today? Or somewhat similar but with more freedom to choose how you spend your time? By getting a clear picture of your ideal retirement, you’ll have a better understanding of the income you may need to make it happen.

You can use the Retirement Living Standards from the Pensions and Lifetime Savings Association (PLSA) as a good benchmark to work out how much you might need per year in retirement. The standards were developed to help visualise retirement at three different income levels - minimum, moderate and comfortable - along with examples of what your lifestyle could look like. For example, whether you’d be able to afford to run a car or holiday abroad.

Helpfully, the standards are also broken down into single people and couples. Here’s a breakdown. As a single person:

  • the minimum living standard is £14,400;
  • the moderate living standard is £31,300; and
  • the comfortable living standard is £43,100.

And as a couple:

  • the minimum living standard is £22,400;
  • the moderate living standard is £43,300; and
  • the comfortable living standard is £59,000.

2. Assessing your current pension pot size

Now that you have a vision, let’s assess where you stand today. Knowing the current size of your pension pot - or pots - is crucial. This will help you determine whether you’re on track to fund the retirement lifestyle that you’d like. You might have pension pots from previous employers, so it’s essential to look into these as well. Make sure you check if any special benefits are attached or if they’re defined contribution pensions that could be consolidated into one plan. Consolidation can simplify administrative tasks and could reduce fees. If you aren’t sure where your pensions are, you can use the government’s Pension Tracing Service to find your former employer’s provider details.

3. Checking your pension balance

Now you’ve hopefully tracked down any old pensions, here are three steps to check your balance:

  1. Log into your pension portal - most providers have an online dashboard where you can check your balance. If you’re enrolled in your workplace pension scheme and aren’t sure how to access your pension, check with your employer.
  2. Contact your pension provider - if you haven’t logged into your account before, or online access isn’t available, reach out to your provider via phone or email.
  3. Review your annual statements - your provider should have sent you a statement each year detailing your contributions and current balance. These are usually sent around March and April each year.

4. Maximising employer contributions

If you’re employed, are you maximising employer contributions? Many people overlook this but it’s important to make sure you’re getting the most out of your workplace pension. Employer match contributions mean that for every percentage you contribute to your pension, your employer adds a certain amount as well. Crucially, if you can afford to, you need to up your contributions for them to do the same.

I recently had a client who missed out on an additional 2% per year for the last five years because she didn’t know her employer would’ve matched her contributions if she increased them. Check with your HR department or review your benefits package to understand exactly what match contributions are available and whether you’re taking full advantage of them.

The importance of starting early

The earlier you start contributing to your pension pot, the more time it has the potential to grow in the long term.

Starting early means more potential for your investments to grow over time. Even small amounts can make a significant difference when given enough time due to the power of compound interest. Compounding is like planting a tree; initially, growth may seem slow, but over time it has the potential to accelerate. Making small adjustments now - like increasing contributions by just 1% - means there’s the potential for growth.

5. What will your current pot size get you in retirement?

So you’ve checked your balance and perhaps even started maximising those employer contributions - great! But what does this all translate to in terms of actual retirement income?

Use the PensionBee Calculator

Online tools like PensionBee’s Pension Calculator can give you an estimate of what your current pot size might get you in retirement. You’ll just need to input:

  • your current age and your desired retirement age;
  • your current pension pot size;
  • your monthly personal and employer contributions; and
  • your desired annual retirement income.

By inputting various scenarios - like increasing monthly contributions or delaying retirement - you can see how these changes impact your future income. It’s an empowering way to visualise different paths and make informed decisions today for a better tomorrow.

Summary

Getting into the best possible position for your retirement starts with understanding where you currently stand and taking proactive steps with your financial planning. Here are four things you can consider today.

  1. Visualise your retirement as best you can using the PLSA’s standards as a guide.
  2. Find any lost pots and use the government Pension Tracing Service if you need help.
  3. Check the balance of your pension pot - or pots - so you know exactly what you’ve saved so far.
  4. Maximise employer contributions if you can so you don’t miss out on additional contributions.
  5. Use tools like the PensionBee Pension Calculator to gain insights into what adjustments could improve your future retirement income.

Planning for retirement isn’t just about numbers. It’s about setting yourself up for the life you want to live in the future. By taking a few simple steps today you should be on the right path towards a comfortable and fulfilling retirement. Your future self will thank you!

Philly Ponniah is a Chartered Wealth Manager and Financial Coach who helps women build confidence around their money. Having worked in the wealth industry for almost 13 years, she now helps high-achieving women get financial clarity, so they can live well today while building wealth sustainably for the future.

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. Past performance does not guarantee future results. This information should not be regarded as financial advice.

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