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How to review your pension: A complete guide

In this pension review guide I’ve looked at the different types of pension available, how you can potentially reduce your costs, and what areas of your pension you should be examining in order to ensure you have the best possible package to suit your unique requirements.

Do you know what you are paying in charges on your pension? Have you any idea how your investments are performing within your pension or indeed what level of risk you have taken on those investments?

Contrary to popular belief, a pension isn’t something that can be set and forgotten about, as time and time again it has been proven that consistent pension reviews can lead to better outcomes, and therefore a better standard of living in your retirement years.

No one wants to spend their retirement worrying about money, and providing enough to live comfortably, without financial stress, is entirely achievable with the right level of planning.

What is a pension?

Simply put, a pension is a pot of money that provides an income for you to live off in your retirement. The reason people will save into a pension rather than a simple savings account, is that the money you deposit into your pension will trigger attractive tax benefits at your marginal rate. Therefore a basic rate taxpayer will receive £20 from the government for every £100 they save into their pension.

There are two main types of pension including:

  • Defined Contribution Pensions
  • Defined Benefit Pensions

Defined Contribution

Defined contribution pensions, also known as a money purchase scheme, are pensions whereby both yourself and your employer can make contributions into either a Self Invested Personal Pension (SIPP), NEST Pension, or Stakeholder pension. The contributions you make, the additional tax relief you receive, and the performance of the investments within the pension, will all contribute to the amount you have saved when it comes time to retire.

You can access this pension from the age of 55, although you can choose to continue to work and save into your pension beyond that point should you wish.

This is one of the simplest pensions to review and switch to an alternative pension provider should this make sense for your circumstances.

Defined Benefit

Defined Benefit works a little differently as you pay money into a pension scheme in exchange for a retirement income. These are also referred to as final salary pensions and the amount you are paid in your retirement is dependent on the number of years you have worked and your salary.

These are more complex to review and transferring your pension funds to another pension provider would require a cash equivalent transfer value which is awarded to you when you relinquish your share of the pension scheme. You would require professional advice in order to transfer out of this pension scheme.

Do you need to review your pension?

Everyone saving for retirement should be looking to review their pension on a regular basis. This is especially true if you took out your pension before the Pension Freedom reforms in 2015, before which your options were a lot more limited.

Failure to perform at optimum levels can cost you thousands when it comes time to retire. You may find that you don’t have the right type of pension for your circumstances.

The website Which has also reported that HMRC have paid back £627m in overpaid pension tax since the Pension Freedom reforms so it’s clear that all pension savers need to check their status in this regard.

Are you paying too much for your pension scheme?

Pension products have gone through significant change recently and online providers are able to offer a greater choice, sometimes with lower charges, than what you may have on an older pension.

To give you an idea of what charges can end up costing you, a £70k pot when you are 40 could be worth £210,300 at 65 years of age, at 5% annual growth, if the charge is 0.5% of the total pension fund.

The same pension pot, in the same circumstances with the one difference of the annual charge being increased to 2% of the total pension fund would be worth £146,564 over the same period. That’s a total difference of £63,736 when it comes time to retire.

This is a simple illustration of the impact that pension costs can make on your total pension fund.

What level of risk should you be assuming with your pension funds?

Many people will start a pension early on in their career. Unless you have chosen your own investments in line with your attitude to risk, your pension will be automatically invested in a default fund, which is chosen to meet the needs of the average pension scheme member rather than being tailored to meet your individual needs.

As you get closer to retirement age, it is normal to start de-risking your investment strategy, however, as many people are choosing to work longer, this can lead to a loss in pension funds.

Knowing when you plan to retire is an important part of your investment planning. In fact, research conducted by Hargreaves Lansdown found that de-risking too early could cost you £20,000 in lost pension savings.

Do you have multiple pension pots?

With auto-enrolment and the propensity for workers to move jobs frequently in today’s job market, it is often the case that people end up with multiple workplace pension pots with separate pension funds which are often forgotten about.

There are several potential advantages to reviewing and consolidating these into one, including making it easier to keep track of, and manage your pensions to get them working efficiently. You may find that one or more of your pots are incurring high management fees and you may be able to increase the efficiency of the investments held within.

Remember, if any of these pension schemes are Defined Benefit, then you should engage the services of a financial adviser before you attempt to move or consolidate your pension.

Where to get advice about your pension

A financial advisor is probably the best place to start when looking to access advice on your pension plan. Of course, whether or not the advice you receive is worth the associated costs will largely depend on the size of your pension pot. However, generally speaking, a pension worth over £30,000 should be reviewed professionally by an advisor who is registered and authorised by the Financial Conduct Authority (FCA).

Get a FREE Pension Review

A qualified pensions advisor at HF Wealth can review your pension for free, with no obligations.

Pension Review FAQs

How much will a pension review cost me?

Initially it’s FREE, but with other financial advisors it will depend on the level of service you require. Usually an adviser will offer a complimentary initial meeting during which they can give you an idea of what’s required and the expected cost of this for you. More often than not, this will take the form of a percentage of your total pension pot, however, the amount you will pay will depend on your unique circumstances.

Will I sacrifice any of my pension benefits?

This is where a professional becomes invaluable. Understanding any benefits you have in your current set up and ensuring you don’t sacrifice those benefits as part of the review process is crucial. An advisor will ensure any action taken is always in your best interest.

How often should I review my pension?

It is recommended that you review your pensions regularly, at least once a year in order to ensure it is fully optimised to provide for your future. The pension landscape is continually changing and new providers with various advantages are constantly being made available.

Should I review my Self Invested Personal Pension?

With a Self Invested Personal Pension you are effectively managing your investments yourself so you may wonder if it is worth it for you to pay the associated costs to have it reviewed. However, a professional can help establish whether you have taken on the right amount of risk, how soon you can expect to retire and how much you will need for your retirement.

Is it worth reviewing my pension if I am close to retirement?

Yes, even more so! A professional can help you establish exactly when you should retire and help you ensure you have adequate funds to provide for your retirement including any long term care you might need.

As well as this a professional can help you establish whether an annuity or drawdown at retirement is most suited to your circumstances and can help you search the whole of the market to find the best option available. This can ultimately provide you with a greater income.

The other area where financial advice can be invaluable when it comes to retirement is managing how much tax you pay when it comes time to draw your pension. There are several excellent options available and a professional will have the capacity to match you with the best option to mitigate tax in a way that suits your circumstances.

Should I review my state pension?

As part of your retirement planning it is certainly worth taking your state pension into account although your state pension is only designed to meet your basic needs and is not considered sufficient for your retirement. You can get an estimate of how much state pension you will receive from the government with a state pension forecast which can be accessed using the State Pension Service.

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