I know this is The Times, and most readers here are smart, savvy and financially literate in their professional lives. But one thing I\u2019ve learnt, after years of talking to people on the street and in boardrooms, is that pensions are still a mystery to far more people than you might expect.<\/p>\n
In fact some of the most impressive, high-achieving people I know have quietly sidled up to me at parties to ask questions about their pension that surprise me in their simplicity. Not because they\u2019re foolish but because no one ever really taught them the basics. And because pensions are one of those topics people feel they should already understand, many are reluctant to ask for fear of looking ignorant.<\/p>\n
I\u2019m here to say this plainly. Starting with the basics matters, even if you\u2019re successful, good at your job and earning well. In fact, most especially then.<\/p>\n
I\u2019m a big believer in practical foundations and helping people learn without embarrassment. So today I want to walk you through five simple things you can do with your pension that many people don\u2019t realise but absolutely should.<\/p>\n
1. Where your pension is (and how many pots you have)<\/p>\n
The first surprise is just how many pensions you may have accumulated over your working life. Every job you\u2019ve had since auto-enrolment was introduced in 2012 probably came with a pension pot attached. Eligible workers pay in a minimum of 3 per cent of their salary and employers pay in at least 5 per cent. And unless you\u2019ve actively done something about it, those pots are all still sitting there, quietly doing their own thing.<\/p>\n
I regularly meet people in their forties, fifties and sixties with four, five, or more separate pension pots that they\u2019ve long forgotten about, spread across old employers and different schemes. Some are being invested sensibly. Some are languishing in expensive, poorly performing default funds or in \u201cstandard\u201d settings agreed by an employer years ago that may no longer be appropriate. And some have been ignored for a very long time.<\/p>\n
\u2022 What is pension auto-enrolment?<\/a><\/p>\n You can\u2019t make good decisions about money you aren\u2019t really in control of. So the first job most need to do is simply to take stock. Find out where your pensions are, how much is in each pot, and what type of scheme each one sits in, whether that\u2019s a master trust, a group personal pension or something else entirely.<\/p>\n Until you do that, everything else is guesswork. Hunt them down and make a list. Seriously. Then, once you\u2019ve worked through the rest of this checklist, decide which pension pot you want to consolidate them into. Pick the best all-rounder for you and roll them up. Don\u2019t wait for retirement \u2014 get in control now and make your pensions work harder for you.<\/p>\n 2. How much you\u2019re paying in fees<\/p>\n Pension fees are one of the great stealth drains on long-term wealth. They don\u2019t arrive as a bill you visibly have to pay each year. They\u2019re quietly skimmed off your balance, year after year, often without you noticing.<\/p>\n There can be a big difference between the fees charged by different pension pots and schemes. Some might be charging about 0.2 per cent of your balance, others 0.6 per cent and some north of 1 per cent. A difference of half a percentage point or so doesn\u2019t sound like much to most people. But over decades, compounded, it can mean tens of thousands of pounds less in retirement. <\/p>\n What surprises people most is how wide the range is. Two pensions can look broadly similar on the surface yet one might be charging three times as much as the other while delivering weaker investment returns. And because pensions feel abstract, long-term and hard to analyse, people tend to scrutinise them far less than things like mortgages, insurance or even mobile phone contracts.<\/p>\n \u2022 The exact amount that means you\u2019re paying too much for your investment<\/a><\/p>\n So find out what you\u2019re paying in fees on each pension pot you hold and what you\u2019re getting for it. Your pension firm has to show you how your fund has performed over time, after fees. That information exists, even if it\u2019s buried in paperwork most people never read.<\/p>\n Understanding fees and the performance of your investments after those fees is one of the simplest ways to improve your long-term pension growth without taking on any extra risk.<\/p>\n 3. How your pension is invested<\/p>\n Some people are taking more investment risk than they realise simply because they\u2019ve never checked what their default fund is invested in. Others, though, are often taking less risk than makes sense for their stage of life because their pension has been automatically moved into lower-risk assets long before they actually plan to retire, quietly reducing its long-term growth potential.<\/p>\n This can happen simply because many default pension funds use what\u2019s called a lifecycle or lifestyle approach to investing. In simple terms that means your pension is set up to gradually reduce risk as you get older, on autopilot. It\u2019s often done by moving some of your pot out of shares and into safer assets such as government bonds, which are less likely to fluctuate in value.<\/p>\n This is done on the assumption that you\u2019ll retire at a particular age and start drawing an income then. Again, this isn\u2019t wrong, it\u2019s just designed to protect people who don\u2019t want to think about investment risk at all.<\/p>\n But the assumptions that these funds make about what you want from your life don\u2019t always match reality. People are working longer, retiring later, moving in and out of work, or planning a more gradual transition into retirement. If your pension starts \u201cde-risking\u201d too early, you can end up being invested far more cautiously than you need to be for many years.<\/p>\n The best thing to do is understand how your pots are invested and choose actively whether you think the approach is right. <\/p>\n You don\u2019t need to become an investment expert to get this right. But you should understand, at a basic level, what your pension is invested in, and whether that actually suits your timeframe and plans for retirement. For many people, staying appropriately invested in growth assets for longer makes lots of sense. And if it doesn\u2019t suit you, it\u2019s usually something you can review and change.<\/p>\n \u2022 The top six retirement regrets \u2014 and how to avoid them<\/a><\/p>\n 4. How much you\u2019re paying in and what you\u2019re leaving on the table<\/p>\n When you put money into your pension three things usually happen. First, some of the money comes out of your pay. Second, your employer adds its own contribution. And third, the government gives you tax relief \u2014 the tax you would have paid on that income if you had taken it in your pay cheque goes into your pension instead.<\/p>\n In simple terms, for most people every pound that ends up in their pension has cost them a lot less than a pound from their take-home pay. In many workplace pension schemes, increasing your pension contribution also triggers a higher employer contribution, up to a limit. If you miss that, you\u2019re not just missing a tax break, you\u2019re leaving part of your pay behind \u2014 truly.<\/p>\n Many miss out on this, simply because they don\u2019t fully understand how the system works. They stick with the default minimum contribution. They don\u2019t realise their employer would pay more into their pension if they put a little more in. Or they underestimate just how powerful tax relief becomes as their earnings rise.<\/p>\n Pensions aren\u2019t just about discipline or good intentions. They\u2019re about understanding the rules of the game and playing it smart. Used properly, they are one of the most efficient ways to turn today\u2019s earnings into your future epic retirement.<\/p>\n