The key to a happy retirement:

Five tips for unlocking your pension potential

Women face a number of challenges when it comes to building up enough savings for a comfortable retirement – but these five tips can help ensure your retirement pot is in the best possible shape for the years ahead.

What would you do if you won £13,000? Did you know you actually have this much extra cash without realising it? In the UK there are unclaimed pension pots worth £19.4 billion, averaging at – you guessed it – £13,000 each!1

Losing track of old pensions is easily done, as people change jobs and move homes more often than they used to. The thing is, if you’re a woman, you’ll certainly need that money. Due to factors like the gender pay gap and pensions gap, your money needs to work even harder in the years leading up to retirement – it may shock you to learn that by retirement age, the median pension wealth of women is about a third of men’s.2

Here are five top tips to help you find any hidden money and fine-tune your retirement savings strategy.

  1. Track down any lost pots

With people having 11 jobs on average in their lifetimes, it’s easy to see why many of us will have a few forgotten workplace pensions.3 Tracking down a lost pension can be as simple as making sure any old pension providers have a current address for you. If you’ve recently moved house, you should write to the pension company, tell them your new address and ask for a statement. You can also get help from the government-backed Pension Tracing Service, either online or by calling 0800 731 0193.

Once you’ve found everything, look at where your money is invested. You may have a pension pot from 10 years ago that was growing back then but is now dragging its feet. You might still be paying fees and charges on multiple pension pots to which you’re no longer contributing. All of this can be costing you money. It’s also a good idea to speak to a financial adviser to check that you’re making the most of the pension allowances you’re entitled to.

It may also be wise to combine them into one pot to help you keep track of your overall savings and estimated income at retirement. Bear in mind that some pensions have high exit fees, or include guaranteed annuity rates that may be lost, so it’s important to understand the risks of transferring out of your scheme before proceeding. This is where professional financial advice will really help.

  1. Do a stock take

You don’t necessarily have to save more in order to ramp up your pension savings (although it’s great if you can!). You can make the money you already have work smarter and harder.

As well as pensions, lots of us have numerous savings accounts scattered about, and there’s nothing wrong with this as long as they’re all building wealth for you. To find out if they are, start by doing an inventory of all your assets and savings. Brainstorm everything you can think of – you could even draw a diagram. Be sure to include your house, any ISAs, and things like Premium Bonds.

  1. Consider your cash

Look at any cash savings you’ve got. The interest rates on savings accounts with a commercial bank are linked to the main interest rate set by the Bank of England. This is currently at a record low of almost zero, which means cash savings are earning virtually nothing. Worse than that, your cash savings may be losing value over time because of the effects of inflation, where the cost of buying everyday items goes up over time.

And, while it’s understandable that people are adopting a cautious mindset with their money during the current climate, it’s wise to keep the future in your sights. There’s no question that it’s prudent – essential even – to have an emergency cash buffer, but we’d recommend that you don’t stop your pensions contributions in order to build such a fund.

Long-term, the difference is clear – if you saved £100 a month in an average easy-access cash savings account (currently earning just 0.22%)4, it would be worth £35,910 in 30 years’ time, after inflation.5 If you invested the same amount into a pension returning 5% a year, however, in 30 years you’d have a pot worth £72,416 (calculation includes an annual charge of 0.5% and an annual inflation rate of 0.2%).6

  1. Mind the gap

Half of the UK’s population face an unequal future in retirement, so it’s important to be mindful of issues like the gender pay gap and pensions gap when planning your later life.

It’s also a good idea to check how much State Pension you could get and when you could get it. You can do this online at www.gov.uk/check-state-pension. This isn’t something you can take for granted – if you’ve taken a career break, parental leave or time out to care for elderly relatives, or been self-employed, you may have gaps in your National Insurance contribution record, and therefore won’t qualify for the full State Pension.

If you’ve missed any, you can top them up with voluntary contributions, but the danger is leaving it too late to catch up, as you can usually only top up for the last six years. The State Pension is incredibly valuable (currently £9,100 for the 2020/21 tax year) and makes up the cornerstone of most people’s retirement income, so make sure you don’t miss out. You can check your National Insurance record on the government’s website.

  1. Don’t forget longevity

As well as encountering a number of financial hurdles that men don’t, women typically live longer – highlighting the need for sound, longer-term savings strategies.

While longevity sounds like a blessing, we wouldn’t want to be unwell and struggling financially during our later-life years. But many women run the risk that this will be their future. We already know that women typically retire with one-fifth of the pension wealth of men.7 New analysis from the Centre for Economics and Business Research found that, when life expectancy is taken into account, the gender pensions gap could be as much as £108,130 for single women, and £186,120 for women who are married or in a relationship.8

Women in same-sex relationships could face a “triple whammy” of challenges: both partners might take a period of maternity leave that could impact their earning power and pension contributions, both may need to work longer, and both may suffer from health conditions over their long lives.

Unlock your retirement potential

As we’ve seen, women will face a significant gender pension gap when they reach retirement age – but there are plenty of things all women can do to increase their chances of a financially secure life.

If you do nothing else, have a think about what you want your future to look like. Do an appraisal of all your long-term savings plans, rounding up any small savings pots you may have forgotten about over time. Sit down and have a chat with a financial adviser to see how things are actually looking for your retirement years. Taking into account the money you’ve already saved, and your capacity to save over the coming years, an adviser can model a likely outcome.

At Wellesley Wealth Advisory, we can help. Call us today on 01444 244551.

 

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Sources:

1.3 ‘Lost pensions: what’s the scale and impact?’, Pensions Policy Institute, 2018
2,7 ‘Understanding the Gender Pensions Gap’, Pensions Policy Institute, 2019
4 Moneyfacts, Savers urged to act quickly to secure best fixed-rate account deals, September 2020
5 Candid Money, ‘How Much?’ Savings Calculator
6 Candid Money, ‘How Much?’ Investment Calculator
8 Centre for Economics and Business Research, September 2020