A pension review can help you understand whether your existing arrangements remain on track for the retirement you want.
Retirement may be something you have been planning for many years, or it may still feel a long way off. Either way, one important question is worth asking:
Are your pensions still on track to provide the retirement you want?
For many people, pension planning happens gradually. You may have joined several workplace pension schemes during your career, arranged a personal pension many years ago, or accumulated different plans with different providers.
Over time, your circumstances may have changed considerably. Your income may have increased, your plans for retirement may have evolved, and the pension arrangements that were appropriate ten or twenty years ago may no longer reflect what you need today.
That is why a regular pension review can be an important part of retirement planning.
Why Review Your Pensions?
It can be surprisingly easy to lose sight of how your pensions are progressing.
You might receive an annual statement, glance at the current value and put it away for another year. But the value of a pension is only one part of the picture.
A comprehensive pension review can help answer much broader questions, including:
- How much have you accumulated for retirement?
- Are you contributing enough?
- How are your pension funds invested?
- Does the level of investment risk remain appropriate?
- What charges are you paying?
- When would you ideally like to retire?
- How much income might you need in retirement?
- What options could be available when you eventually take your benefits?
Most importantly, a pension review can help establish whether your existing arrangements remain appropriate for what you are trying to achieve.
Have You Accumulated Several Different Pensions?
Changing jobs during a working lifetime can result in several pension arrangements being accumulated along the way.
You may therefore have a current workplace pension together with pensions from previous employers and perhaps one or more personal pensions.
Having several pensions is not necessarily a problem. There can be perfectly good reasons for retaining different arrangements.
However, it can make it more difficult to see the overall picture.
A pension review can bring your arrangements together on paper so that you can understand what you have, how each pension is invested and how they collectively contribute towards your retirement plans.
Are You Saving Enough for Retirement?
One of the most important retirement planning questions is also one of the most difficult:
How much is enough?
There is no single figure that applies to everyone.
The amount you may need will depend on your intended retirement age, lifestyle, expenditure, other income and assets, and what you actually want retirement to look like.
For example, someone expecting relatively modest expenditure and with other sources of guaranteed income may require something very different from somebody planning extensive travel or an expensive retirement lifestyle.
Rather than looking at your pension fund in isolation, retirement planning should consider the income you are likely to need and the resources potentially available to provide it.
This may include pensions, the State Pension, savings, investments and other assets or sources of income.
When Did You Last Review How Your Pension Is Invested?
Pensions can remain invested for decades, and the investment strategy you selected many years ago may not necessarily remain appropriate today.
Your attitude towards investment risk may have changed. Your financial circumstances may be different and, importantly, the amount of time remaining until you expect to access your pension may have reduced.
A pension review can consider areas such as:
- Your current pension investments
- The level of investment risk
- Diversification
- Investment performance
- Fund and product charges
- Your anticipated retirement timescale
- Your capacity to withstand investment losses
This becomes particularly important as retirement approaches because decisions about investment risk increasingly need to be considered alongside how and when you expect to draw an income.
A Pension Review Doesn’t Necessarily Mean Changing Your Pension
This is an important point.
Reviewing a pension does not automatically mean that it should be transferred, replaced or changed.
Existing pensions can contain valuable features, guarantees or favourable charges that could potentially be lost by moving them.
In many cases, the conclusion of a pension review may simply be that an existing arrangement remains suitable and no change is required.
The purpose of a review should be to understand what you already have before deciding whether any action is appropriate.
What Happens as You Approach Retirement?
Pension planning becomes particularly important as retirement gets closer.
Under current pension rules, many people have considerable flexibility over how they use their defined contribution pension savings.
Depending upon your circumstances and the options available under your pension, these could include taking tax-free cash, purchasing an annuity, using flexi-access drawdown, taking lump sums, or using a combination of different approaches.
Each option has advantages, disadvantages and potential tax consequences.
You can read more about two of the main retirement income options in our separate article on Annuities vs Flexi-Access Drawdown.
The right approach will depend upon your individual circumstances, objectives and attitude towards risk.
Retirement Planning Is About More Than Your Pension
A good retirement plan should not consider pensions in isolation.
For many people, retirement income could eventually come from several different sources.
These might include:
- State Pension
- Workplace and personal pensions
- ISAs and other investments
- Cash savings
- Property or rental income
- Employment or part-time work
- Other sources of income
Understanding how these resources could work together can provide a much clearer picture of your financial position.
It can also help you think about one of the biggest retirement questions of all:
When can I afford to retire?
The Importance of Retirement Income Planning
Building a pension fund is only the first stage of retirement planning.
Eventually, the focus changes from accumulating money to deciding how that money should support you throughout retirement.
This introduces a different set of considerations.
For example, if pension money remains invested while withdrawals are being taken, investment returns and the timing of market movements can have a significant effect on how long the fund may last.
Retirement income planning therefore needs to consider not only how much income you require, but also how that income might be provided sustainably over the longer term.
Cashflow planning can be particularly useful here, allowing different retirement scenarios to be considered and helping illustrate the potential effect of decisions made today.
Could Your Retirement Plans Have Changed?
Retirement plans rarely remain completely static.
Perhaps you originally expected to retire at 65 but would now like to finish work earlier.
You may be considering reducing your working hours rather than retiring completely.
Your mortgage may be approaching repayment, your children may have become financially independent, or your priorities may simply have changed.
These developments can materially alter the amount of income you need and how your pensions might eventually be used.
A pension review provides an opportunity to reconsider your retirement plans based upon your circumstances today rather than assumptions made many years ago.
Frequently Asked Questions About Pension Reviews
There is no single timetable suitable for everyone, but pensions should generally be reviewed periodically and when there is a significant change in your circumstances.
A review can become particularly important as you approach retirement or if your retirement plans change.
Not necessarily.
Consolidating pensions can sometimes make retirement planning and administration simpler, but transferring pensions may also result in valuable guarantees, benefits or favourable terms being lost.
Your existing arrangements should therefore be carefully assessed before making a decision.
No.
Reviewing your pension earlier in life can provide more time to make adjustments if your retirement savings are not progressing as expected.
Increasing contributions or changing a retirement strategy can potentially have a much greater effect when there are many years remaining before retirement.
It can still be worthwhile.
An old pension may continue to represent an important part of your future retirement provision even though contributions have stopped.
Understanding its investments, charges, benefits and how it fits alongside your other pensions can therefore be valuable.
Recent pension statements are usually a useful starting point, together with details of other pensions and investments relevant to your retirement planning.
It is also helpful to think about when you would ideally like to retire and what you would like your retirement to look like.
Would You Like to Review Your Retirement Plans?
If you have pensions that have not been reviewed for some time, have accumulated several different pension arrangements, or are beginning to think seriously about retirement, this may be a good opportunity to take stock.
At LFP Asset Management, we provide independent financial advice on pensions, investments and retirement planning.
An initial 30-minute exploratory appointment is available without charge or obligation. This provides an opportunity to discuss your existing arrangements, your objectives and whether you could benefit from further advice.
To arrange an appointment, please contact us on 01752 603232 or get in touch through our website.
Please note: LFP Asset Management does not provide advice on transferring benefits from current or previous defined benefit (final salary) pension schemes.
Important Information
This article is for general information purposes only and does not constitute personal financial, investment, pension or tax advice. The information provided should not be relied upon when making financial decisions, as the suitability of any course of action will depend upon your individual circumstances, objectives and needs.
The value of investments can fall as well as rise, and you may get back less than you invest. Past performance is not a reliable indicator of future performance.
Pension and tax rules can change, and the value of any tax benefits will depend upon your individual circumstances.
Before making changes to an existing pension, it is important to consider its charges, investment options and any valuable benefits or guarantees that could be lost.
LFP Asset Management Independent Investment Advisers is authorised and regulated by the Financial Conduct Authority.