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Making the most of your pension pot

Thursday, June 30, 2016

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No matter how far away you are from your retirement, it's never too early to start thinking about the preparations you need to make for when you stop working.

  1. Consider combining old pensions with new ones
  2. Stay on top of potential charges
  3. Could annuities be part of your financial strategy?

Funding your lifestyle in later life is something many fail to plan for effectively and many experts believe there is a problem on the horizon for people who do not maximise their existing and future pensions arrangements.

To help you think of more useful ways to plan for your ultimate pension pot, here are six top tips to consider. You can also check out the LV Retirement Wizard for more help and guidance.

1. Create a spreadsheet

Being able to see how your pension pot is performing is the first crucial step to building a bigger fund. One former Pensions Minister says the UK is lagging behind on offering a digital way to do this, so for now a spreadsheet is the most effective way.

You can have columns for your State Pension, amounts coming from private pensions and annuities, cash savings goals, money due from property and other inheritances/lump sums.

Set this against a prediction of how much you will need for each year of your retirement.

2. Consider combining your pensions when you leave a job

There is no right or wrong answer on whether combining your pensions from two or more jobs is the right move. It should be a well-considered personal choice based on expert financial advice.

It would seem to make sense to have all of your funds in one place, as this allows you to manage everything more easily, but spreading the risk of your investments could also be a good idea in a bid to generate a larger overall pot.

The Pensions Advisory Service offers a wealth of background on this issue to help you make a more informed decision.

3. Be sure of the cost of withdrawing your pension early

In the recent Queen's Speech for the 2016/17 session of Parliament, the Government announced a new Pensions Bill that will help those facing charges for withdrawing money early from their pension pot.

These often hefty early exit fees could be faced by as many as 700,000 people, according to a report by the BBC.

“We fully support the removal of exit fees and any other barriers that prevent people from accessing their money as they want, and with the provider they want,” observes John Perks, Managing Director of Retirement Solutions at LV=. “It’s vital that people are able to shop around without penalty at retirement.”

4. Try and understand all the charges that you face

A study by the Transparency Task Force (TFF) claims there are now more than 100 different and sometimes hidden charges being levied on pensions. The report suggests that these charges could be reducing the total value of a fund by more than a third.

It is important to stay on top of any accrued charges and fees that have an effect on the long-term financial status of your pension pot. If any gains are being eaten up by fees, you will ultimately be unable to maximise the amount in your pension pot for the future.

5. Think about annuities as part of a wider strategy

Converting money from your pension pot into guaranteed income for life through an annuity may appeal to you – having certainty about the amount you will receive is an attractive proposition.

However, even though there are many different types of annuity, you have to commit to whichever one you choose, which reduces flexibility and means you have to be sure the outcome is right for you.

A report in City A.M. claims annuities are making a comeback, despite the pension changes that offered over-55s more freedom to make other investments. With more changes coming to annuities in 2017, which could allow people to sell theirs on, it's never been more crucial to investigate and understand how your current position could be affected in the future.


However you choose to play around with your pension pot, it's important to start now. Whether you have one, five or 15 years left before you might retire; planning and securing your future should always be top of your list of life issues to fully understand and continually react to for the best outcome.


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Beginners guide to retirement planning

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Our simple jargon buster and top tips from the experts

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