How to avoid the ‘future pension crisis’

Millions of people are marching towards retirement with way too little money saved, in what experts are calling a future pensions crisis.

This is getting significant attention lately as the government has relaunched its old ‘pensions commission’ to figure out how to tackle the issue – and research released alongside this announcement found retirees in 2050 are on track to get *8%* less private pension income than those retiring today.

There are a few reasons for this, but one major factor is the shift from gold-plated ‘defined benefit’ pensions, where you get a guaranteed income in retirement based on your salary, to ‘defined contribution’ pensions, where you save up a pot of money for retirement.

These newer pensions tend to be less generous than the old guaranteed type, and they rely on people saving enough money themselves, which simply isn’t happening.

The self-employed are particularly at risk of under-saving. New government research has found that more than three million self-employed people are not saving into any pension.

Insiders view: The predictions for the decline in retirement income are yet another financial headache for younger generations. But the good news is, there ARE steps you can take now to avoid your own retirement crisis.

1. 1. Make sure you’re getting free cash via ‘pension tax relief’

When you pay into a pension, the government tops up your contributions. This is known as ‘pension tax relief’. For every £100 a basic rate taxpayer puts in, the government boosts it by £25.

If you save somewhere else that isn’t a pension, you miss out on this free cash, so make sure you’re contributing to a pension to benefit from those top-ups. The more you contribute, the more free cash you’ll get.

If you’re self-employed, you can set up a ‘personal pension’. You can opt for either a regular personal pension, where your money is managed by someone else, or you can opt for a Self Invested Personal Pension (aka a SIPP), where you pick your own investment funds. You won’t get employer contributions, but you’ll still get the tax relief money from the government.

2. 2. Consolidate your pensions to a lower-charging pot

If you’ve had a lot of jobs, the chances are you have several pension pots knocking around. If any of these are over 10 years old, you might be paying a higher fee than you could get now.

Pension charges eat into your savings, but you can move your old pensions to a newer scheme charging lower fees. This could save you thousands of pounds in the long run.

Open your new pension and ask to transfer your old pension in. We have a free pension tracing service to find your old pensions – and all you need are your name and address.

3. 3. Make sure your investments are performing well

When you save into a pension, your money is invested on your behalf. But not every workplace pension fund is the same, and some perform better than others.

You can usually change the fund your pension is in, but unless you do that, your money will be put in a ‘default’ fund, and these often don’t perform that well.

We’ve analysed all of the workplace pension funds out there (yes, really!) so you can compare yours against others to check if it’s performing well or not. Moving to a better-performing fund could boost your pension by thousands of pounds over time.