How does my pension compare?
By monitoring your fund, you can see how well it’s performing. However, everyone’s circumstances are different, so it’s not necessarily helpful to compare your pension pot to someone else’s.
The most important calculation is whether it’s on track to provide enough for your own retirement. For many people, it might not be.
Steven Cameron, of Aegon, said: “Unfortunately, the amounts people are holding in their pension, particularly if they have no defined benefit entitlements including from past jobs, is often woefully inadequate to provide a comfortable income level in retirement.
“The state pension provides a sound basis but for most won’t be enough. With many people completely unaware of this, we need to find ways to help people make informed decisions which could mean saving more now or accepting they’ll need to work a few years longer before retiring.”
If you’re just starting a pension, some experts advise dividing your age in two and adding that to your pension as a percentage of your pre-tax salary.
Using this method, if you began at 24 then 12pc would be the right amount. If you don’t get underway until 34, you’d need to put in 17pc. This includes tax relief and any contributions from your employer.
If you’ve already started, again the key is to keep an eye on your pots and make adjustments where needed.
Ms Morrissey added: “Check how much you’ve got in your pensions and use a pensions calculator to check if you are on track. Don’t worry if you aren’t, many of these models will show you the potential impact of boosting your contributions so you can pull together a plan for what you need to do. It’s never too late to make a difference to how much you end up with, but by engaging early and regularly you can really keep yourself on track and take a lot of the fear factor out of pension planning.”
It’s important that your pension pot doesn’t run out and leave you struggling financially in the future. However, there is a danger you could save too much in the present, especially as it becomes locked away until your late 50s.
Ms Holgate said: “It’s really important to ensure that any pension savings are affordable, as there is a minimum age that you can access the funds again and your personal tax situation will be a consideration when making withdrawals. You can’t access money in a defined contribution pension until age 57 for most schemes, or 58 from April 2028, so you must be comfortable locking away your savings for the long term.
“A good place to start would be to draw up a list of your regular expenditure, both essential and discretionary, and then work out how much money is left over each month.”
If you feel like you’re already putting in as much as you can, there are other ways to add money to your pension.
Ms Morrissey added: “It can be hard to carve out extra money from a budget that might already be stretched. However, taking the opportunity to boost your contributions every time you get a pay rise or new role can be a relatively pain-free way of increasing how much is going in. You haven’t got used to having that money in your pocket yet, so you won’t miss it. It’s also worth checking if your employer is willing to pay more in if you do. This is known as an employer match and can be a good way of really boosting your contribution without necessarily putting in much more yourself.”
There is also tax relief to consider. If you pay tax, you’re entitled to the same rate of tax relief on your pension contributions. This will be done automatically, so if you pay 20pc tax, every £100 you put in only costs you £80. You’ll still get this on your contributions even if you don’t earn enough to pay tax.
If you’re a higher rate tax payer, i.e. you pay 40pc or 45pc, you can also benefit from additional tax relief on your pension contributions. This means every £100 will only cost you £60 or £55.
Only 20pc is added automatically, so to get the extra you will need to either fill in a tax return or contact HMRC and tell them. This is particularly relevant if you’ve got a pay rise or promotion that’s taken you into the next tax bracket for the first time, as it’s money you might not be used to claiming.