Many people start a pension and then essentially ignore it, thinking that they will then be properly set up for retirement. While somewhat forgetting about your pension is fine 364 days of the year, a pension should be regularly reviewed just like all other investments, if you want to be seeing the best returns.
Like other investments, you need to review them to ensure the level of risk and return changes as you age and with other changes in your life. If you stick with the same scheme for the entire time you are working and paying into your pension, you may find that your funds have not built up enough to properly support you when you choose to retire.
Reviewing your pension will show you how well your options are performing and allow you to decide whether to move to a different pension plan that will perform better, giving you more support in retirement. Here are 5 reasons why you should review your pension today.
5 Reasons to Review Your Pension Today
1. You May Be Overpaying
Pension products are forever developing and changing, including a reduction to charges over the last 20 to 30 years or so. When you review your pension, you will be able to identify outdated charges that would have been reduced had you been with another, more up-to-date pension plan.
When you work to identify when you may have been overcharged, you can make changes to your pension to make sure that it is performing at its best, with the highest possible return.
This article from Which? states that, since the pension freedoms were introduced in 2015, the HMRC has had to pay back £627 million in overpaid pension tax. Just another reason to understand how much your pension charges should really be.
2. Your Retirement Plan May Have Changed
Reviewing your pension regularly will also give you an indication of how well your pension is progressing towards supporting you in retirement. When you started your pension, it’s likely that you set out goals of the amount you wanted to reach before retirement, depending on your needs, but these may have changed over time along with lifestyle changes.
Your pension pot needs to remain in line with your current needs and desires, so it is important to take the time to reassess what lifestyle you want to live when you retire, how much you can put away, and any other changes.
Without reviewing your pension, it is not very likely that you will know how much you will receive from either your pension funds or from the state pension when you enter retirement. The state pension probably isn’t enough to support you comfortably in retirement, so you want to ensure that you are getting the best from your pension.
3. Your Pension May Be Underperforming
A regular pension review will also allow you to determine which of your funds may not be performing quite as well as they could be. You may have fund that performed particularly well when your pension was first set up, but over time their performance may have greatly reduced, and they are no longer as beneficial to you as they could be.
Reviewing your pension enables you to assess whether each of your pension funds is still cost-effective and whether they are getting the best return on investment. If they’re not, this is the time to replace it with an option that will perform more effectively and earn you more support for your retirement.
4. You May Need to Reassess Your Risk
Your pension is an investment fund, and regardless of whether you invest your savings or not, you do need to take the time to review your risk level ideally once a year, but at least once every 5 years.
When it comes to a post-retirement goal, everybody will have ‘risk appetite’, typically determined by factors such as health, well-being, at what age you hope to retire, and your financial situation and goals. Reassessing your risk regularly is important, particularly as you get closer towards retirement, as your pension goals need to take this risk into consideration.
If your needs during retirement have changed, you might find that you are more willing to take risks that will lead you to your overall financial goal or you feel that you need to take fewer risks so that you can be sure you and your family will be supported during your retirement.
Your personal risk is very much subjective, and it will likely depend on your lifestyle at the time of review. Taking almost no risk may mean that your retirement goal is almost impossible to attain, and conversely, a lot of risk could put you at risk of feeling a market nose-dive right before you retire.
Pension funds generally aren’t high risk anyway, and you’re much likely to find your pension risk is too low, so don’t panic. It’s worth learning more about changing your investment allocations later in life if this feels a little bewildering at the moment. (The book The Simple Path to Wealth is a great place to start learning about this if you are a beginner, no matter your age!)
5. You May Want to Combine Pensions
If you’ve built up a number of workplace pensions during your working life it can become more difficult to keep track of how each one is performing (or even where they are!).
You may find that you have pension pots from some of your early jobs that are lying dormant with expensive charges placed on them and others that are performing much better. If this is the case, you may want to consider combining your pensions into one place.
Having each of your pension pots in the same place might make things easier for you to manage, with fewer charges and other options for investment. However, you should ensure that you aren’t missing out on other, more profitable investment opportunities simply because combining your pensions seems like a more manageable option.
In order to perform at their best, pensions need regular attention despite being a long-term investment. They need to be modified whenever circumstances in your life, or objectives for your retirement, change, also taking the current market into consideration.
Although there is no strict rule as to how often you should review your pension, it is good practice to perform a review at least every 2 years or whenever you have had a significant change to your life. If you don’t take the time to review your pension, you won’t be able to calculate how much you are going to receive when you retire, and you will not be able to properly prepare for retired life.
At Evason Fildes, we can help you put your pension to work so that you can have the best quality of life when you reach retirement. Start by receiving your free initial pension review online by simply providing us with some basic details and we can work with you to ensure you have a comfortable and rewarding financial future.
