14th January 2021
These days, it’s unlikely that your retirement income will simply come from a combination of one Final Salary pension and the State Pension.
As workers increasingly change jobs and careers throughout their lifetimes, income in later life will probably come from a range of sources. You may enter retirement with multiple smaller pensions – perhaps a combination of workplace schemes and pensions you’ve set up yourself – as well as investments, the State Pension, and other assets.
If your income is likely to arise from a range of sources, it’s vital that you keep track of all these pensions during your working life. Here are three simple jobs you can do this January that will help you get your pensions on order in 2021.
1. Track down all your existing pensions
If you’ve worked for several employers during your career, it’s likely that you will have built up several pension funds along the way. And, if you only worked for a company for a short time, it’s easy to lose track of smaller funds.
The Association of British Insurers estimates that UK workers have lost track of around 1.6 million workplace pension pots, with an average size of £13,000.
If you do have multiple pension pots with different providers, they could all play a role in providing the income you need to enjoy the retirement you want. So, make 2021 the year that you get on top of your pensions, and make sure you track them down.
If you can’t remember the details of each one, a good place to start is the government’s free Pension Tracing Service which can help you to locate ‘lost’ pensions.
When you have tracked down all your pensions, obtain up-to-date values and projections so you have a good idea of what you can expect them to provide when you retire.
If you do have multiple pensions, managing them can be difficult. One option to consider is consolidating your Defined Contribution pensions into one plan. As well as making things easier to manage, you may also be able to benefit from lower fees and better investment returns. However, doing this may mean you lose additional benefits such as valuable guarantees.
Taking professional advice can help you to make the right decisions when it comes to consolidating your existing pensions. Get in touch with us to find out how we can help you.
2. Get a State Pension forecast
The State Pension will provide the foundation for your income in later life. While it may not be sufficient to fund the lifestyle you want, it will provide a guaranteed, inflation-proofed income after you reach State Pension age (currently 66 but rising to 68 in the future).
The amount of State Pension you receive when you reach State Pension age will depend on the number of qualifying years you have, and any gaps in your National Insurance contributions (NICs).
In 2020/21, the full State Pension is £175.20 per week. To receive any State Pension, you’ll need at least ten qualifying years of NICs and, to get the full amount you’ll need 35 qualifying years. If there were years when you didn’t make National Insurance contributions, you might find that you don’t receive the full amount.
If there are gaps in your record, you may be able to make voluntary contributions to ‘buy’ additional years. However, be aware that this doesn’t always increase the amount of State Pension you receive, so be sure to check first.
Establishing exactly what you will receive will help you plan your retirement. So, request a forecast to find out exactly how much your State Pension will be when you retire. Get in touch with us if you’re unsure.
For more, read everything you need to know about the State Pension and the role it plays in your retirement planning.
3. Update your death benefit nominations
Once you’ve tracked down all your old pensions, and obtained valuations and projections, you need to make sure that your death benefit nominations are up to date.
Remember that your pensions will normally not form part of your estate for Inheritance Tax purposes and so are not covered by your will.
In most pensions, the scheme administrator has the final say over who receives the death benefits of your pension. This is part of the structure which allows your pension to stay outside of your estate for inheritance tax purposes and normally can’t be changed.
A nomination form (or an Expression of Wish) allows you to tell the trustees/administrators of the pension scheme who you would like to benefit on death. This expression of wishes is your way of telling your scheme administrator who you would like your beneficiaries to be.
While the scheme administrator will complete their own investigations following your death, they will often follow the instructions in the nomination unless there’s good reason not to.
If you have multiple pensions, or your circumstances have changed since you started paying into your pension (perhaps you have got married or divorced) then you may need to review your arrangements.
In 2021, contact the pension provider/administrator, obtain the relevant Expression of Wish form, and make sure your beneficiaries are up to date.
Get in touch
If you want to make 2021 the year you get your pensions in order, we can help. Please get in touch by email at firstname.lastname@example.org or call (0161) 8080200.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected the interest rates at the time you take your benefits.