8 reasons to have a pension review now

For many, our pension represents the foremost or second most valuable asset that we will own in our lifetime.

We keep our homes and cars well insured and maintained. And if you ask most people about material aspirations, they will often cite improvements to the house or car as the benefits are short term and tangible. They are easy to focus on. Such items support an ideal of a lifestyle we aspire to engineer.

Workers in Britain today will likely spend between 20-35% of their lives retired. If we want a fighting chance of realising our retirement lifestyle aspirations, we must perform essential maintenance. This means looking for chances to improve our pension solutions sooner rather than later. Although the results may be less tangible in the short term, they are life changing in the long term. 

The People’s Pension published a report earlier this year following research into people’s retirement planning habits. The key findings highlighted how “savers were scared of planning for the future”. and that they “underestimated the financial risk of growing old and don’t understand how inflation can impact their savings”. You can read the full report here: New Choices, Big Decisions: 5 Years on.

Don’t delay – review today

The pension saving journey is like the voyage of a vast ship on the ocean. You must have a good navigator checking the charts regularly to ensure you don’t run off course. With navigation neglected, it takes a long time to change direction. And your arrival time could be delayed (or overly expensive).

Why have a pension review now?

Here is an overview of the key reasons why now is a great time for a pension review.

  1. Pricing: General market evolution, technology and outsourcing has brought downward pricing pressure on the pension sector for 20 years. There is hundreds of billions of pounds marooned in older style schemes charging too much.
  2. Features: Post 2015 Pensions Freedoms rules mean nobody is forced to buy an annuity if they don’t want one. Savers can draw a variable income from an invested pension from age 55. Many older schemes don’t offer this yet charge more than the modern schemes that do.
  3. Legacy: New rules allow unused pension savings to be passed to dependents or non-dependents. This is usually via lump sum, annuity or flexi access drawdown. The latter empowers the cascading of wealth down a theoretically unending number of generations. In the majority of cases, Inheritance Tax is not applied to pensions.
  4. Investments: The proliferation of choice has led to downward price pressure on investment options. Increased transparency and analytical tools allow advisors to identify higher quality and better value solutions for their clients. The adoption into the mainstream of indexing strategies has opened up new low-cost solutions popular with some.
  5. Socially Responsible Investing: No longer must you pay over the odds or experience poor performance for selecting ethical investment solutions. These solutions have achieved cost parity and now offer comparable, or sometimes even greater, returns.
  6. Consolidation: With career mobility on the rise in the modern economy, gone is the job for life. Couple this with the adoption of Auto Enrolment, employees are accumulating a large collection of pensions. Savers view it as hard work keeping track of them all.
  7. Shortfall Analysis: Using sophisticated forecasting software, a pension review can act as a health check. It can be used to reveal your current pension funding trajectory. If you’re falling short, we can reveal how much extra you need to save, or indeed what age you may be able to afford to retire. How much of your race is left to run, where is that finish line?
  8. Pandemic: If the pandemic has changed your career direction or working patterns, this may have an effect on your retirement funding. In addition, many self-directed pension investors approaching or in drawdown may realise they were ill equipped to deal with such a period of high volatility and sought professional advice as a result.

The cost of delaying your pension review

The graph below shows the power of compounded returns and relative value of time/early action when it comes to pension savings. It compares the monthly contributions needed for 3 savers who reach 3 different ages with a £100,000 pension value. They identified they need a £500,000 pension value at age 65.

5.5% net return compounded monthly, £100,000 starting value, assuming higher rate taxpayer, lineal returns, same risk throughout period.

This quantifies how powerful earlier action can be with pensions, the saver who addresses at 45 rather than 55 pays one quarter the contribution size. How much of the total can the market give you compared with funding yourself? The saver who took action at 45 will enjoy considerably more spare money than their counterparts. The compounding returns over time have rewarded their foresight and patience richly.

Read more in our fact sheet

If you would like to undertake a pension review, please get in touch with a member of our team on 01903 534587.