5 Things You Should Know About Your Pension

5 things you should know about your pension

by Rebecca Hall on 2 Apr, 2012

When surveyed in 2008, 39% of UK respondents said “I would rather enjoy a good standard of living today than save for retirement.” Around 10 million people save nothing at all for their future, and 4 million save not nearly enough. These 5 things to know about your pension are not handy hints on squeezing a few extra pounds here and there, these are essential facts that could save you from an old age in poverty.

5 things you should know about your pension# 1 Is your pension related to your final income?

Probably not.

If you get used to a certain lifestyle in your working years you will have a massive shock in retirement.

Earlier this month Shell became the last FTSE 100 company to close its final salary pension scheme to new recruits.

State pensions have never been related to pay. The maximum pension for a single person is £102.15 per week. Note that word maximum – many people, typically women, get far less.

5 things you should know about your pension# 2 You already face a massive gap in income

The gap between what UK workers earn in employment and what they receive in retirement is already the biggest in Europe.

# 3 Will your pension keep up with inflation?

Probably not.

With final salary pensions gone, your retirement pension will be paid out on ‘defined contribution’. This means that what you get out is related to what you have put in; not to inflation.

# 4 You will be at the mercy of the markets

Defined contribution also means that what your pension is worth could rise or fall with investment markets. If they fall at the wrong time, ie just when you are due to ‘cash in’ your pension, then you will get a smaller pension. In any event you can’t convert your pension into cash – all you can do is buy an annuity, an income for life. If the cost of buying an annuity on the annuity markets rises at the wrong time, ie just as you are about to retire, then you will receive less income in retirement. A double whammy from the markets.

# 5 You are likely to become ‘weary’

Over the last few years the pension age in the UK has risen from 60/65 to 68 and, as the population gets older that’s likely to increase further, giving rise to a new type of person, the weary or ‘Working, Entrepreneurial and Active Retiree’, whose pension is insufficient for a comfortable retirement.

If you are looking for pension fund risk management tools then have a look at www.SunGard.com/APT where you can read about market risk management portfolio management to help you make the right long-term decisions.

About the Author

Rebecca Hall


Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.