Put your pension right in four simple steps!

The outlook for pensions is looking brighter, so it's time to take action and sort yours out!

Well, it had to happen sooner or later. And here it is, the moment you thought would never come.

Finally, some good news about pensions.          

All has been doom and gloom in the world of pensions since last autumn's stock market crash hacked nearly 25% off the value of the nation's personal and defined contribution workplace pension funds.

But with the FTSE 100 surging back towards 5,000, a fair chunk of that damage has mercifully been reversed. Pensions have been restored to levels seen last September, just before the final stock market crack.

So if you're in a pension scheme (with the exception of a final salary scheme, where the final payout is guaranteed by the company), your pension prospects are a lot healthier than they were in early March.

Yay!

And now, more pensions misery

Enough good news. I'm the man who compared the UK pension system to a horror story in my article In retirement, nobody can hear you scream and I'm not going soft just yet.

Unless you're an MP or a bailed-out banker, both of whom enjoy pensions guaranteed by the taxpayer, chances are you're still not saving anywhere near enough for retirement.

The average pension pot is a pitiful £25,000, which is enough to buy you an income of around £25 a week. If you want your annuity income to do fancy things such as cover your partner after your death, or rise in line with inflation, you will get even less.

I bet you spend more than £25 on Saturday night. Well, that was your budget for the week. You will get state pension on top, of course, if the state can still afford to offer pensions when you retire.

As you can see, gloomy is my default position on pensions, but despair isn't. There are still four things you can do to put things right.

1. Review your pension pot

Three out of 10 members of workplace pension schemes have no idea where their pension is invested and have never reviewed its performance, according to Prudential.

Too many people check piddly things such as their latest gas or mobile phone bill, but barely glance at their pensions statement, which is supposed to supply your income for the last 20 or 30 years of your life.

So dig out your annual workplace and personal pension statements now. They aren't that difficult to read, and include really useful information such as the size of your pot, where it is invested, and how much income it may buy you in today's prices at age 65.

Is your pension festering? This is the only way to find out. You should also make sure you qualify for your full state pension entitlement.

2. If your pension is festering, clean it up

Take a look at the different investment funds that make up your pension. Performance over the last year may have been pretty grim, but how have your investments performed over the longer term?

Big name pension funds are often some of the worst performers. Here's the worst five pension funds with more than £1 billion invested in them over the past 10 years (first worst):

• Abbey Equity
• Friends Provident UK Equity
• Scottish Life Managed
• Clerical Medical Balanced
• Phoenix Life Exempt Managed.

Do you have money in any of those? Or similar disasters? If your funds have underperformed over the longer term, switch. You might need to take independent financial advice.

3. Invest!

There are some problems you can't solve by chucking money at them, but your pension isn't one of them.

Once you have got any debts under control, start setting money aside every month for your retirement. Don't delay, read Why you should start your pension today.

This doesn't have to be in a pension fund, although the attraction is that you get 20% or 40% tax relief, depending on your tax bracket. You can save tax-efficiently using your annual ISA allowance instead. This time you don't get the tax benefits up front, but you'll be able to withdraw your money free of tax.

4. Stick at it

The best way to save for your pension is to make a regular monthly contribution, preferably by direct debit, so the money will leave your bank account without you even noticing.

By investing just £100 a month, you can Up your pension pot by £94,000.

If you're investing in stocks and shares, which most pension funds are, this has a further advantage. You benefit from something called pound-cost averaging, which means your monthly contribution nets you more shares when prices are cheap, as they have been recently. Anybody who kept their monthly contributions going between October and March, when stocks hit rock bottom, should reap the benefit in years to come as shares rise.

Time ain't on your side

Annoyingly, many people are using the recent good news on pensions as an excuse to do nothing. Aon Consulting reports that a shrinking number of people have been asking to see the value of their pension pots in recent months, as stock markets claw back recent losses and confidence improves.

Fools! Stock markets may have delivered some good news lately, but there is still a long, long way to go. Use the time wisely.

Want to learn more? Become a pensions experts in five days. They may not be the most exciting five days of your life (although you never know), but they could be the most rewarding.

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