Another week, another report telling us that we need to do something about our pensions. Up to 14 million workers are set to retire with far smaller pensions than their parents, as the “golden sunset gives way to a bleak dawn”, warns the latest report, which comes from the National Association of Pension Funds-backed Workplace Retirement Income Commission. It’s admirable that companies are trying to get us to save more. But it’s also easy to forget that pension funds also have a vested interest in getting you to do so – the more you invest, the more fees they can make.
It’s important to start saving as early as you can if you want a decent retirement. But it’s fair to say that the blood-curdling forecasts from these reports can seem rather unrealistic and just plain unattainable to many. For example, the conclusion of one recent report was that to find what percentage of your salary you should be putting into your pension, you should take your age, and half it. So at 25, while most of us are still finding our feet in our career, you should be handing over 12% of your salary to the pension industry. At 35, when you’re trying to find the money to raise children or pay the mortgage, you should be squirrelling away 17%. What if you simply can’t save that much? Or you’re 45 and you’ve only just started putting money away?
The good news is that there are other ways to maximise your pension income without necessarily having to fret about your dissipated past. For a start, if your workplace offers a company pension scheme, and you aren’t in it already, then assuming your employer matches your contribution in some way – most do – then you should join it. Otherwise you are effectively missing out on ‘free’ money.
If you already have a private pension, when was the last time you checked how it was performing and do you know what fees you are paying? Almost a quarter of private pensions in Britain are now in “closed” funds, says pensions expert David Craig in The Daily Telegraph. These tend to be sold off to third parties, at which point growth often stalls but the fund charges stay the same. Check what your charges are – they should be shown on your annual statement – and then find out if you could get a similar pension at a lower cost.
Finally, the single biggest improvement you can make to your retirement income is to shop around for an annuity when it comes time to buy one. Two-thirds of us still just buy the annuity offered to us by our pension provider, but shop around and you could boost your retirement income by up to a third.