UK Pension Awareness Day: Your Future Self Will Thank You – Why It Pays to Know Your Pension

For many people, pensions sit firmly in the category of things to worry about another day. 

If you are in your twenties or thirties, retirement can seem a million miles away. In your forties and fifties, there are often more immediate financial demands. And pensions themselves can appear complicated, full of unfamiliar jargon and easier to ignore than understand. 

But on Pension Awareness Day, I would encourage everyone to do one simple thing: spend a little time getting to know your pension. You don't need to become a pensions expert. But there are a few things everyone should know. 

First, find out what you have. 

Most of us will have several jobs during our working lives, and changing jobs can mean accumulating several different pension pots. According to the Pensions Policy Institute, there are an estimated 3.3 million lost pension pots in the UK, containing £31.1 billion in assets. That’s a lot of lost money. 

So, find your accounts. Check how much is in them and where they are invested. If you have lost track of a pension from a previous employer, the Government's Pension Tracing Service can help. 

Once you know what you have, consider whether bringing some of your pensions together would make them easier to manage. Remember, pensions come with fees and charges, and holding multiple pots may mean paying charges across several accounts. Over many years, fees can erode your retirement savings. 

Consolidation will not be right for everyone – some pensions have valuable benefits or guarantees that can be lost on transfer – but having a clear picture of your overall savings is an important starting point. 

Second, know how much is going in.

Automatic enrolment has been one of the great successes of UK pension policy. Millions more people are now saving into workplace pensions because of it. 

But getting people into pensions is only half the job. 

At the Coller Pensions Institute, our research, UK Pensions: Opportunities and Challenges, highlights a significant challenge: current minimum contribution rates are unlikely to provide an adequate retirement income for many people. 

Being automatically enrolled shouldn't mean automatically assuming you are saving enough. 

Look at your payslip or pension statement. How much are you contributing? How much is your employer contributing? And importantly, will your employer contribute more if you do? 

Some employers offer contribution matching. If yours does, increasing your contribution may unlock additional money from your employer. It’s a no-brainer – money for jam! It is definitely worth knowing whether you are taking full advantage of what is available. 

Third, understand the extraordinary advantage of starting early. 

For younger workers especially, retirement can feel impossibly distant. But when it comes to pensions, time is one of your greatest assets. 

That is because of the power of compounding. Money invested today can earn investment returns; those returns remain invested and can themselves generate further returns. Over decades, the effect can be significant. 

Relatively small amounts saved consistently when you are young can therefore make a meaningful difference later. For example, a £4 takeaway coffee each working day adds up to £20 a week. Invest that same £20 a week for 20 years and, assuming an average annual return of 5%, it could grow to around £36,000.* That’s a lot of coffees to buy in retirement. 

Finally, ask yourself what you are actually saving for. 

A pension isn't simply a pot of money with a number attached to it. Its purpose is to provide an income in retirement. 

That is also the central argument in CPI's work on UK pension reform. Pension systems have many competing objectives, but their primary purpose must remain providing people with adequate and secure retirement incomes. 

Knowing your pension balance is useful, but knowing what sort of retirement income it might eventually provide is much more useful. The UK Retirement Living Standards provide estimates of what different standards of living in retirement might cost. 

You may not know exactly what your retirement will look like, but having some idea of what you are aiming for makes it easier to judge whether you are on track. 

Government, employers and the pensions industry also have an important role. At CPI, we have argued for higher minimum contributions, better pension portability and consolidation and measures to address gaps in pension coverage. Individuals cannot be expected to solve shortcomings in the pension system themselves. 

But we can all become more engaged with the savings being accumulated in our name. 

So, this Pension Awareness Day, take a few minutes. Find your pensions. Check your balance. Look at how much you and your employer are contributing. Find out whether you could receive a higher employer contribution. Consider whether your different pots should be consolidated. 

And ask the most important question of all: am I on track for the retirement I want? 

Your future self may be very glad you did. 

*Illustrative example only. Investment returns are not guaranteed and actual outcomes will be affected by factors including fees, charges and investment performance. 

Written by:

Fiona Reynolds

President