How To Take A Pre-Retirement Financial Health Check

Luke Norman a Financial Planner at Progeny considers what to think about in National Pension Week

National Pension Awareness Week (31st October - 4th November) aims to help people get to grips with their pension saving. According to a recent study from think tank Phoenix Insights, nearly half the UK population is not confident about their ability to save enough for retirement and 18 million people in the UK are not adequately preparing financially for their retirement years.

To help combat this, here are some simple steps you can take to help you feel confident about your finances in retirement.

Check your State Pension forecast

The full level of State Pension in 2022/23 amounts to £185.15 per week and the triple-lock guarantee ensures it will increase by at least 2.5% each year, meaning it can provide a reliable baseline level of income in retirement.

By logging into the gov.uk website, you can find out how much State Pension you are on track to receive and when. You will also be able to see whether there are any gaps in your National Insurance record. These can be filled by making voluntary contributions to increase your pension entitlement – for guidance, you can speak to the Future Pension Centre, who can talk you through the process.

Locate your pensions

It’s very common to have had a number of employers throughout your working life, joining a variety of different pension schemes along the way. Even if you have worked for the same employer for your entire career, they may still have altered their pension scheme, leaving you with more than one plan.

To help locate all your pensions, map out all periods of your working life where you may have been part of a pension scheme and gather your most recent pension statements together. You may also be able to view some of these pensions online.

If you are struggling to locate a pension, the gov.uk website offers an online service where you can find contact details for a pension scheme using the name of your employer. This should allow you trace any missing pension schemes.

Once you have located all your pensions, keep the provider names and plan numbers somewhere safe that you can refer back to in the future.

Understand your pensions

People often find the topic of pensions a bit daunting but it’s important to both understand and review your pension plan at least annually.

Essentially, there are two main types of pensions:
Defined Benefit: Provides a guaranteed level of income in retirement, which is based on your earnings and your length of service.
Defined Contribution: Builds a pot of money, which is determined by the amount you and your employer have paid in, plus any investment returns. It is more difficult to determine the level of income that could be generated from a defined contribution pension, as this depends on a large number of factors. However, your annual pension statement will provide you with an estimate of the amount of guaranteed income your pension could purchase in the form of an annuity. This should give you a broad idea of what you could be on track to receive at your selected retirement age.

If the total level of income estimated by your pension providers does not match your expected needs in retirement, consider whether it may be appropriate to start making additional savings.

If you are married, it’s also important to understand if your spouse would be entitled to an income from the pension scheme in the event of your death.

There are many factors to contend with when reviewing your pensions, including how they are invested, whether you have nominated any beneficiaries and whether you have an entitlement to any valuable guaranteed benefits. Ensure you seek independent financial advice prior to making any changes to your pensions.

What other sources of income could you have?

Although pensions will be the main source of income in retirement for many, you may additionally have other assets that could be used to generate an income for you, such as savings, investments, property or even a business. Make sure you also factor in how these assets could contribute to your desired lifestyle in retirement, so you see the full picture.

Review your liabilities

One often overlooked aspect of retirement preparation is having a clear plan to repay any debts you may have. For most, this will mean ensuring that you have a plan to repay your mortgage, although this also extends to things such as car finance, credit cards and personal loans.

Consider the remaining term on your debts and whether these coincide with your intended retirement age. It can become increasingly difficult to obtain finance without the stable earnings of working life, so it’s important to have a solid plan in place to repay your outstanding debts.

Determine your spending

Understanding your expected outgoings once you stop working is one of the most crucial elements in creating a robust retirement plan. Taking the time to assess the level of income you might need, and want, will give you greater clarity on how achievable your retirement objectives are.
Engaging with your retirement plans can help you to make decisions about the future with more confidence. The sooner you do this, the more control you have over the options available to you. Speaking with an independent financial adviser can also help to give you more clarity and confidence around working towards the retirement you desire.