How to get the best out of your pension

No one plans to have a poor old age. But it’s common for ‘saving for retirement’ to fall to the bottom of the to-do list. Here are some simple tips on how to get ahead, writes money coach Talia Loderick

Reality TV star Gemma Collins is urging people to prioritise their pension pot as part of the Pension Attention campaign ((Pay Your Pension Some Attention/PA))

In an inspired piece of casting, The Only Way is Essex star Gemma Collins is fronting a new pension campaign.

In the minute-long parody beauty ad, the TV star starts by promoting a pot of “Future Face” cream to keep the signs of ageing at bay.

But she interrupts the sales spiel to say: “Sorry hun, but there’s a more important pot to think about. I’m talking about your pension pot. We all need to face the future and think about what we might need for our retirement.”

The Pension Attention campaign has been put together by a group of different financial companies. They surveyed 2,000 people and found that while 57 per cent had bought anti-ageing products in the past year, only 23 per cent had organised their pensions.

And the GC (for the uninitiated, that’s Gemma Collins’s nickname) is right. Not saving for retirement is one of people’s biggest financial regrets. And I get it – it’s understandable. When you’re young, retirement seems achingly far away... so why prioritise saving for it? “Yolo”, right?

Plus, the older you get, the more demands there are on your money – so saving for retirement is a stretch. The amount you now need to save can seem so large that you might tell yourself if you can’t save a lot, there’s no point saving a little.

Then there’s how you manage your finances as a couple – and how this impacts the gender pensions gap; which currently stands at 35 per cent, according to government figures. For every £100 of men’s private pension wealth, women have £65.

Let’s be honest, the topic of pensions can feel both a bit depressing and be dry and complicated (and intimidating) as a result.

But who doesn’t like free money? Or being reunited with lost money? This is what I’ve been reminding a number of my money coaching clients lately as they sort their pensions – that what you do now will come back to you in the future when you need it most.

Without further ado, here’s how to pay your pension some attention and avoid retirement regret:

First, you need to start by understanding the three main “pillars” when it comes to pensions.

The full state pension is currently worth around £11,500 a year. The amount you receive depends on how many years of National Insurance (NI) contributions you have made. Visit gov.uk to check your state pension forecast and make sure your NI contributions are up to date.

Then there’s your workplace pension. When you pay into one, your employer pays in too – that’s free money. You also benefit from tax relief – when you pay into a pension, some of the money from your pay that would have gone to the government as income tax goes towards your pension instead.

You can also set up a personal pension. These also benefit from tax relief. Self-employed people can use a personal pension for their pension savings. If you’re self-employed you can take advantage of the free self-employed pension review service offered by the financial guidance website MoneyHelper.

There’s an estimated £26bn in lost pensions in the UK – so it’s well worth seeing if any of it is yours.

Another practical top tip is making a list of everywhere you’ve worked. An old CV can come in handy, here. See if you’ve got any paperwork relating to these former companies – such as payslips or pension documents detailing your pension plan number or contributions made.

Even if you don’t have any paperwork, don’t worry. You can still contact your old employers and find out if you ever paid into a workplace pension with them. The financial guidance website MoneyHelper has this guide on what to ask your former employer and pension provider when tracing lost pensions.

(If you don’t know how to contact your employer or pension provider, the UK’s pension tracing service can help. Find out more at www.gov.uk/find-pension-contact-details.)

One key question you might be worrying about – or wondering – is: how much money will I need to live on in retirement?

This might help – the retirement living standards guidelines have been created to give people an answer and paint a picture of life in retirement.

There are three standards: minimum “covers all your needs, with some left over for fun”; moderate offers “more financial security and flexibility” and comfortable covers “more financial freedom and some luxuries”.

They’ve calculated that a single person will need to spend about £14k a year to achieve the minimum living standard, £31k a year for moderate and £43k a year for comfortable. For couples, it’s £22,000 for minimum, £43,000 for singles and £59,000 for comfortable.

The Pensions and Lifetime Savings Association, who devised the retirement living standards, say that by giving savers a general figure that they can understand, their hope is that savers “can then start to develop their own personal targets based on their individual circumstances and aspirations”.

They’ve created a number of examples to show what kind of living standards different people could have in retirement depending on their salaries, household and savings. It’s worth making the time to have a proper read of the research.

And finally, as I discussed with a client recently, you don’t have to put money into a pension to save for retirement. But pensions are a tax-efficient way to save for retirement.

With pensions, as in all the other areas of finance, I think the best way forward is to consider what matters to you in life and how you can manage your money in line with that. The most important thing is that you make an informed (not overwhelmed) decision about pensions and do what’s best for you.

Talia Loderick is a money coach who helps people to understand and take control of their finances. Her website can be found here.

Her top tip this week? There is a series of live, online shows covering different aspects of pensions available to the public to attend for free, 10-12 September. Find the timetable here: pensionawarenessday.com