Pension mistakes

Pension mistakes to avoid in your 40s

By the time we hit our 40s, we are supposed to have our life completely figured out. We are supposed to have a long-term partner, kids, stable jobs and plenty of money tucked away for our retirement. Well, in reality, maybe some people do. But for many of us, it’s probably more along the lines of ‘winging it’ than ‘winning it’.

We’ve created the following tips to help you towards a happy retirement.

Don’t leave your old pensions scattered around

If you have had more than 1 job, you’re likely to have paid into more than 1 pension. Whilst having multiple pensions may not be bad in itself, it can carry certain risks:

  • With several pensions to manage, you are more likely to lose track of any of them and run the harsh risk of completely forgetting about them by your retirement.
  • Your pensions will likely use varying strategies to invest your cash, which can lead to inconsistencies and overlaps, fundamentally leading to a poorly balanced investment portfolio and reduce your overall growth potential.
  • Your pensions charge a variety of fees, some more expensive than others. This can result in you having to pay more than you need and eat into your growth potential.

Don’t pay in too little, if you can help it

Many workplace pensions are known as ‘defined contribution plans. This basically means that the amount of pension income you will receive in retirement is affected by the amount you contribute (pay in). So, paying in more now will pay off in the long term.

Of course, not everybody can afford to pay large sums into their pension every month. And it might be really tempting to believe that there is no just reason to contribute more than the standard 5% that was likely automatically set up when you linked up with your workplace pension. But paying in even just a little bit more can make a huge difference to your future retirement funds.

Throughout my years as a financial adviser I have found that typically, a 45-year-old with £30,000 in their pension postpaid in £200 a month until they reached retirement at 67, their pension pot might be worth around £120k at their retirement. But if they paid £250 a month, their pension pot may be worth around £140k at retirement. Contributing £300 a month could result in a pension pot worth around £160k.

Don’t lose your pensions

As we get older and the list of our previous jobs grows even longer, the risk of our old pensions becoming lost and forgotten further increases too. This really is no trivial matter either. It is estimated that over 1.6 million pension pots worth over £19.4 billion are ‘lost’. That is calculated at £13,000 per pension – a whole year’s worth of pension drawdowns, to pay for an essential lifestyle.

Fortunately, lost pensions can easily be found. And the quicker you act, the faster you can merge it into your main pension, ultimately making your savings far more efficient.

To locate any lost pensions, follow these steps.

  • Get in touch with your former employers and ask them which pension schemes they may have had set up when you worked there. Give them your employee or payroll number, if possible, to help speed up the process.
  • Contact the pension providers whose name sounds familiar, and ask them to search your records. You may need to provide your National Insurance number and DOB.
  • You can also use the government’s Pension Tracing Service to track the names and contact details of your pension providers.
Christophe Rude
Christophe Rude
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