Your pension to-do list: saving, consolidating, tracing & more

Are you doing enough to prepare for retirement? We look at your pension priorities, which tasks can wait a while, and what you must never do.

Urgent tasks: 5 things to do NOW!

Here are your top priority tasks.

1. Start saving now

If you aren’t already saving into a pension then you need to start as soon as possible, according to Alice Haine, personal finance analyst at Bestinvest.

“Workers aged between 22 and state pension age, and earning more than £10,000 a year, are automatically enrolled into a workplace pension scheme.”

However, some don’t qualify for auto-enrolment – due to either age or salary – and must make their own arrangements.

“You can start a private pension anytime you want, whether you are working, self-employed or out of work,” she added.

Alice Guy, head of pensions and savings at Interactive Investor, said: “Getting started early also means your investments have longer to grow.”

2. Tracking down your pensions

For those who have started saving for retirement, tracking down past pensions makes sense, according to Helen Morrissey, head of retirement analysis, Hargreaves Lansdown.

“As we move from job to job it’s easy to lose track and you could be left thousands of pounds worse off in retirement,” she said.

Make a list of everywhere you have worked and check through the paperwork to see if you have details for each pension. If not contact the Government’s Pension Tracing Service. 

3. Work out how much you have in place

Once, you’ve got all the pension details you can work out how much you have and you can start putting a plan in place for what you want your retirement to look like. 

“Use a pension calculator to get a sense of what your pensions might give you in terms of an income and you can model the impact of putting in a bit more,” said Morrissey. “The earlier you start then the easier it will be to hit your goal.”

4. Ensure state pension record is on track

As well as a private pension, it is vital to make sure your state pension record is on track to ensure you receive the maximum payout, pointed out Alice Haine of Bestinvest.

“Your state pension entitlement is determined by the number of qualifying National Insurance years you have,” she said.

“People typically need at least 10 qualifying years of NI contributions to receive any state pension at all and at least 35 years to receive the full new state pension.”

5. Nominate your pension beneficiary 

A pension is one of the best ways to plan your retirement – but your diligent saving can also ensure your loved ones potentially benefit, pointed out Alice Haine.

“The money in your pension is an asset which can be left to your loved ones when you die, but it is vital you inform the trustees of your scheme where you want the money to go,” added Haine.

3 tasks that can wait

There are lots of tasks to do if you want to ensure a comfortable retirement.

However, while they're all important, these can potentially wait.

1. Don’t be pressurised into making decisions 

Just because you’ve hit a certain age doesn’t mean you must automatically follow the crowd, according to Helen Morrissey of Hargreaves Lansdown.

“You don’t have to make decisions about how you want your retirement income to look just because you’ve hit your 60s,” she said. “If you don’t need the money then you don’t have to take it. Deferring can mean you end up with a bigger income later.”

Similarly, you can make decisions around areas such as annuities and income drawdown when you have a better idea of your future lifestyle.

2. Consolidate multiple pension pots

Gathering old workplace and private pensions into one place – a process known as consolidation – can also be a wise move.

Alice Guy of Interactive Investor said: “Many of us build up multiple pension pots from previous employers, making it difficult to work out if you’re on track and keep an eye on investment performance and fees.”

It can also save a lot of admin, according to Alice Haine at Bestinvest.

“Having retirement savings fragmented across numerous plans means wading through a plethora of statements and multiple login and password details to remember,” she said. 

However, scooping them into a single pension will give you a clear picture of the state of your pension and whether you have adequate savings to fund your retirement.

“You will have one password to recall and one place to track your pension savings and ensure they are aligned to your long-term financial goals,” she added.

3. Mop up unused allowances

It’s also worth making sure you’re using all your allowances, according to Alice Haine.

“Pensions have the added benefit of ‘carry forward’ rules where savers can max out unused allowances from the previous three tax years once they have made full use of their current year allowance,” she said.

A large bonus, for example, can be put to work in a pension, with a saver potentially able to make a gross pension contribution of up to £200,000 before the end of the tax year. 

“However, you must have contributed the maximum permissible amount to your pension in the current tax year and have belonged to a UK-registered pension scheme in each of the three tax years before the current tax year,” she explained.

The investor also needs qualifying earnings in the current tax year that match the total amount they plan to contribute.

“Someone that wants to use the carry forward rule to contribute £100,000, for example, needs qualifying earnings that at least match that figure this tax year,” she added.

6 things you must NEVER do

What must you never do? Here are the golden rules when it comes to your pension planning.

1. Never ignore your retirement 

Helen Morrissey at Hargreaves Lansdown believes it’s important people aren’t scared of their pension arrangements.

“They often think they haven’t done enough and are unwilling to engage with it for fear of finding out the worst,” she said. “It’s never too late to make a difference. If you find you have gaps in your planning making extra contributions can make a huge difference.”

2. Don’t make knee-jerk reactions 

It can be tempting to make knee-jerk investment reactions to market volatility. However, this will be a mistake.

“Pensions are a long-term game and we will see markets fluctuate over the years,” said Morrissey.

“Maintaining a portfolio diversified over geographies and asset classes will help ride out to stickier patches and you can consult a financial adviser if you feel you need more guidance.”

3. Don’t ignore free cash 

Saving into a pension attracts Income Tax relief on contributions, which can grow free from Income Tax and Capital Gains Tax – so you mustn’t ignore them, pointed out Alice Haine at Bestinvest.

“The Government gives pension savers tax relief on pension contributions up to their annual allowance, which makes it a highly effective way to reduce an Income Tax liability at a time when taxpayers are grappling with the highest tax burden since the Second World War,” she said.

Any money contributed to a pension gets topped up by 20% automatically for basic-rate taxpayers, while higher or additional-rate taxpayers can claim back another 20% or 25%, respectively.

“Even non-taxpayers, those not working or children, can benefit from tax relief, though the amount they can contribute is capped at £2,880 with the government topping that up with 20% tax relief giving them a total pension saving of £3,600 per year,” she added.

4. Don’t overpay into your pension

For most people, the total sum of personal contributions, employer contributions and government tax relief received must not exceed the annual allowance of £60,000 – or 100% of your earnings, whichever is lower, according to Haine.

“There are even more rigid and complicated rules for the very highest earners under a tapering allowance that can reduce the annual allowance to as little as £10,000,” she said.

“Exceed these amounts and you could be liable for tax charges so track your contributions carefully.”

5. Don’t transfer out of a final salary pension or defined benefit scheme 

These schemes used to be commonplace but most of those outside the public sector have closed their doors to new members.

“These offer a retirement income directly linked to your earnings, rather than the performance of an investment fund and therefore offer much greater certainty,” said Haine. “Instead, look at consolidating your other pensions and leave the final salary pension where it is.”

6. Never give up on it completely 

You should never give up on your pension, even if you’re behind where you want to be, according to Alice Guy at interactive investor.

“It’s really common to have gaps in employment or periods you can’t afford to pay in as much as you’d like,” she said.

“The main thing is to keep going as even small amounts mount up over time and get you one step closer to the retirement you want.”