Your pension fund is likely to provide the bulk of your income in retirement. Because of that, understanding how much is in your fund, and what that means in terms of the income it will provide, will likely be a key aspect of your financial planning.
This is particularly the case as you get close to the time you will want to start considering stopping work.
However, recent research carried out by Standard Life reveals that nearly a quarter of people (24%) over the age of 55 have never checked their pension and have no idea how much is in their fund.
Not engaging with the financial issues around such an important transition in your life can easily create a whole series of problems, such as not enjoying the income you need to live comfortably, or even running out of money.
So, find out why it is so important for you to know how much you have accrued in your pension fund, so you can accurately plan for your future with confidence.
Your pension fund is a key component of your financial planning
While, to an extent, your pension fund can take care of itself and simply just be a pot into which your contributions (and those of your employer, if you work for someone else) are paid each month, it is important to be aware of the value of your fund.
Furthermore, finding out the value should be a relatively simple process, as most personal and workplace schemes will provide you with online access.
As well as checking your current arrangement, you may also want to ensure that you regularly check the values of any other pensions you may have previously contributed to.
You can contact these schemes directly, or through your previous employers if necessary. If you have lost track of any old arrangements, you will find details on the government website for how to track down these schemes.
It can be sensible to review how much you have at least once a year. This will give you an idea of whether you are on track to meet your financial targets, or if you need to make adjustments, such as increasing your pension contributions or amending your investment strategy.
Careful planning can give you an idea of how much income you will need in retirement
Naturally, the amount of income you need once you stop working will depend on your retirement plans and personal circumstances.
Data published by Retirement Living Standards can give you a rough idea of the level of income you would require in order to live a certain quality of lifestyle.
For example, if you are single, you will require an annual income of:
- £31,300 to live a moderate lifestyle
- £43,100 to live comfortably with more financial freedom.
For couples, the equivalent figures are:
- £43,100 to live a moderate lifestyle
- £59,000 to live comfortably.
These are clearly only guide figures, and will not apply to everyone. But, they do give you a useful indication of the annual amount you might require to live the life you have worked so hard to enjoy.
It can also be helpful to get a more detailed picture of how your income requirements could be affected by factors such as inflation and investment returns, as well as your own expenditure and retirement plans.
One way of achieving this is by working with a financial adviser. We can use cashflow modelling to provide you with a detailed analysis of how such factors could affect you, and how much you would need in your pension to live your desired lifestyle as a result.
There are some proactive steps you can take if you think you do not have enough in your fund
Once you have an idea of how much is in your fund, and a projection of the value at retirement, you will be able to ascertain whether you are on track for the level of income you require, or if you have a shortfall that you need to address.
One obvious way to mitigate this is to boost the amount you are paying into your retirement fund. The big advantage of doing this is that you will get tax relief on all your personal contributions up to the lower of your Annual Allowance of £60,000 gross (less any employer contributions made this tax year, and plus any carry forward that you have available), or 100% of your earnings (2024/25 tax year).
Basic-rate relief will be added automatically, so every £1,000 you contribute becomes £1,250 without you having to do anything. You can also claim higher rates of relief if you pay higher- or additional-rate Income Tax.
Bear in mind your Annual Allowance may be reduced if you are a high earner or have already flexibly accessed your pension.
As well as the current tax year, you can also backdate claims for higher rates of relief for up to the previous four tax years. Citywire reports estimates that state £830 million of tax relief went unclaimed in 2017/18, so it is worth checking whether you have claimed all the relief you are entitled to.
You may also want include the State Pension in your income calculations. While the full 2024/25 State Pension of £11,502 a year (rising to £11,976 in 2025/26) is likely not enough to live comfortably on by itself, it could provide a handy income underpin, is guaranteed for life, and is designed to increase each year.
You can check on the government website the age at which you will start receiving it, and how much you will get.
Finally, it can also be sensible to consider other assets you may have that you could use to provide income, such as savings and investments.
You could consider delaying or phasing your retirement
Keeping up to date with how much you have in your pension fund will also give you an idea of how long you may need to continue working before you can retire.
Putting back your intended retirement date, even by just a couple of years, could give you the time you need to really prioritise building your pension fund.
Another option is to consider a phased approach to retirement, rather than simply stopping work one day and starting your retirement the next.
By continuing to work part-time, you will still have more time to yourself, but an ongoing income will mean you can draw less from your accrued retirement fund. In turn, this could help ensure that it continues to provide you with an income for longer in later life.
Get in touch
If you have any queries regarding your retirement planning, you can email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
