Aviva recently looked into so-called pension “triple defaulters”. That is those Brits who have never updated their pension contribution amounts, investment choices, or target retirement age.
According to the report, millions of those aged between 32 and 40 are likely to be auto-enrolled triple defaulters. But older pre-retirees could be guilty too.
Sticking to your default pension options can spell trouble for several reasons. You could be missing out on higher employer contributions, for example, or be invested in funds that don’t match your risk profile or values on sustainability issues.
If you worry you’ve become disengaged from your pension, or you’ve slipped into a default position, we can help.
Keep reading to find out how.
1. Check in with your current contribution amounts and increase them if you can afford to
If you’re contently paying into your workplace pension through auto-enrolment, you might be contributing the minimum amount.
Under the current rules (for the 2023/24 tax year) the minimum contribution is 8%, with at least 3% of that coming from your employer.
Depending on when you started saving, how long you have left in work, and your other pension provisions, this might not be enough to provide your desired retirement lifestyle.
Consider upping your contributions if you can afford to. If you receive a pay rise or a work bonus, you might channel this into your pension straightaway so you don’t have the chance to miss it.
Once you opt to increase your contribution, speak to your employer too. While some might already pay more than 3% as a staff incentive, others might match your increase – and you won’t know unless you ask.
Your pension is incredibly tax-efficient and even more so since the Annual Allowance increased to £60,000 in April 2023. This is the amount you can contribute each year while still benefiting from tax relief.
Tax relief is applied automatically at 20%, meaning a £100 increase in your pot costs you just £80. As a higher- or additional-rate taxpayer, you claim extra relief through your self-assessment tax return.
Back in February, a MoneyWeek report confirmed that around £1.3 billion in tax relief went unclaimed in the five years to April 2021. Be sure to make the most of this tax efficiency and the relief you are due, especially if you increase contributions.
2. Consider your investment choices, risk level, and the ESG impact of your funds
A successful long-term investment will be aligned with your long-term goals and risk profile. But the default pension funds your workplace pension is invested in won’t be specific to you. Speak to your employer about available funds and then speak to us.
It’s important to remember that your risk profile isn’t a static thing. It can change, especially throughout a long-term investment.
At the start of your investment journey, with decades to go before you reach your goal, you can afford to take a higher amount of risk. That’s because you’ll still have plenty of time to recover from any losses or short-term blips, and the greater risk comes with the chance of greater reward.
As you near your retirement date, you’ll want to consolidate the gains you’ve already made and might opt to move into a lower-risk fund.
Aviva suggests that their same 22-year-old employee, moving away from a default fund and securing just a 1% rise in their rate of return, could increase their final pension pot by £57,000.
It’s also worth considering whether your default funds align with your values on sustainability issues. Funds that concentrate on firms with a good record of environmental, social, and governance (ESG) factors have seen huge growth in recent years.
There are more ESG funds available than ever, and aligning your money with your investments doesn’t have to mean sacrificing healthy returns.
3. Check in with your plans to ensure life events haven’t altered your priorities or changed your retirement plans
You likely formed your long-term retirement plan in place some time ago, possibly even decades ago. It makes sense then, to check in with it regularly to ensure your aspirations then, match your goals now.
Life events and milestones – from births and deaths to marriages and divorces – can alter your priorities. If your goals haven’t changed then your plan doesn’t need to. But your plan is also robust and adaptable. So if have considered changing your retirement date, or opting for a different type of retirement, the sooner your plan reflects these changes the better.
Your annual review is a great time to make us aware of these changing priorities. We can look at your fund choices, asset allocation, and risk profile and make the necessary adjustments to your plan.
Remember, your plan is individual to you and it isn’t set in stone so get in touch now to see how we can help you make changes.
Get in touch
HA&W can help you make the most of your pension by improving on default retirement options and ensuring your plans work for you. Contact us now to find out how our Chartered financial planners could help you.
Please note
The value of your investment 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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
