After working for years, the last thing you want is to face financial insecurity in your retirement. Make sure you’re not heading for a retirement shortfall by watching out for these signs.
Times are changing and bring less financial security to retirees. Today’s pension landscape is vastly different from that of past generations, and you can quickly fall into the trap of saving too little for your retirement.
Here are 4 signs you may be facing a retirement income shortfall:
You’re Not Contributing Enough
Employers have to enrol all their staff in workplace pension schemes, thanks to auto-enrolment regulations, as well as contribute towards your pension savings. This means your employer will contribute a certain amount to your fund, and you will need to contribute the rest.
Check your contribution level and that of your employer. Try to increase this to the largest amount you can afford. Most workplace pension schemes will allow you to adjust your contributions as your circumstances change. This means you can reduce your payments later should you have more financial obligations. Also make sure you’re getting the maximum benefits from your employer, as this will bolster your pension pot.
What is retirement shortfall? The length of time until you retire is most likely the most significant factor affecting the size of your contributions. The longer you have to save, the lower your monthly contribution will need to be. And if you leave it late to start your pension fund, you’ll find you need to contribute more to reach the same goal.
You Haven’t Paid Enough National Insurance
Relying on the full state pension can be tricky – not only will it most likely not be enough to continue your current lifestyle, but you may also find you’re not eligible for the full state pension. To qualify for your full state pension, you need to pay National Insurance for 35 years. If you’ve been employed for most of your adult life, chances are you will have paid your share of the National Insurance by the time you retire.
Did You Know?
If you’ve been unemployed or taken time off due to illness or to care for family, you may find yourself short. Check with the government1 to make sure you’re on track to receive the full state pension, and if you’re short, you can top up with voluntary National Insurance contributions or claim National Insurance credits.
You’re Paying Excessive Fees
All pension funds come with management fees. While these might differ from one pension provider to the next, not all providers are transparent with their fee structure. Comb through your paperwork to make sure you’re not missing any hidden fees, as these can have a considerable impact on your pension pot.
Most pension schemes will charge an annual management fee to cover the cost of administration. Another typical charge is an exit fee, which is applied with withdrawals from your pension.
But there’s more
But there are also hidden costs that could be chipping away at your pension savings. Contribution charges could be applied to your fund, which means the pension provider takes a cut every time you put savings into your fund. You could also be subject to inactivity fees – a charge levied when you don’t contribute to your fund within a specific timeframe.
There are also policy fees, service fees and underlying fund fees which could be heaped on top of your annual management fee – even though they also cover admin costs.
Over time, these charges can have a considerable impact on your fund and can slowly eat into your savings. Check your statements regularly to make sure you’re not paying any additional charges.
You Don’t Know What Your Old Pensions Are Worth
Most people will change jobs a few times in their career – and this can leave behind a string of pensions, forgotten and no longer contributed towards.
Managing a pension can be challenging – but put multiple pensions with different pension providers into play, and you’re looking at a management nightmare. It’s often easiest to combine all your pensions into one scheme. But first, you have to track them all down.
Start looking for your pensions either through the government’s Pension Tracing Service2, which uses your details to find the contact details of your pensions providers, or contact your former employers directly.
You may be able to transfer some of these pots to your current workplace or private pension, or you may have to contact a specialist for advice on consolidating your funds. Depending on the restrictions of each pension scheme, you may be able to transfer some pots into your current workplace pension or a private pension, within a set period.
Bringing all your pensions together gives you the benefit of having only one scheme to manage, and can also save you losing small funds to hefty fees.
A Few Common Questions
Fees will vary between pension providers, but the average yearly charge on a pension fund is around 1%. Some pension providers may even charge less. It’s best to read through your paperwork or ask your pension provider for a breakdown of the costs that apply to your pension pot.
Fees can have a significant impact on your pension pot over time. The higher the fees, the more money will be pulled out of your savings fund, and this will slowly eat away at the money saved for your retirement. Most pension providers work with fees that are a percentage of the value of your fund, and reducing this percentage can prevent you from losing a considerable amount of your funds.
Having all your funds in one place can allow you to keep track of your pension savings more easily. Added to this, you may save money if you move your funds into a scheme with lower fees and you may also have a broader choice of investments if you consolidate your funds.
Ensure your contributions are up to date by checking your National Insurance record with the online State Pension checker. If you’ve been unemployed or taken time off due to illness or to care for family, you may find yourself short. You can buy voluntary National Insurance contributions or claim National Insurance credits to bring you up to date.
Making sure you have enough funds for your retirement can be easily achieved with these few steps. But neglecting your pension pot could leave you forced to stay employed later in life, or leave you with a shortfall during your retirement years.