What are people’s biggest pension concerns? Tips to help you plan

When we asked people what their biggest concern was about pensions, just under a third said the constant tinkering with pension rules made them nervous. And with the spring statement just around the corner on 23 March, there’s no guarantee the government won’t tinker with the rules again.

Hopefully it will be a quiet statement from a pensions’ perspective. The government has already frozen and reduced many pension allowances in recent years.

Investment volatility is also a key concern. A quarter said sharp market drops like we saw in the early days of the pandemic, and more recently with the Russia-Ukraine conflict, can be worrying. Remember though, what goes down often can come back up again, and as markets recover so can your pension fund. Of course, there are no guarantees. Investments can fall as well as rise in value, so you could get back less than you invest.

If you too have concerns when it comes to pensions, here are four top tips to help take the worry out of your retirement planning.

This article isn’t personal advice. If you’re not sure what’s right for you, ask for financial advice. Pension and tax rules can change, and benefits depend on your circumstances. Once held in a pension money isn’t usually accessible until age 55 (57 from 2028).

1. Keep an eye on the annual allowance and your contribution levels

To check that you’re staying well within the rules, it’s important to keep an eye on the annual pension allowance limits and your regular payments. This is especially important if you’re a high earner, or if you’ve recently taken a taxable income from your pension. Your allowances might be different to the standard limits.

Most people have an annual limit of £40,000 each tax year. But the government can change this limit at any time. For instance, the annual pension allowance was reduced to £40,000 in the 2014/15 tax year from £50,000, and it’s stayed at this level since.

If you’re a high earner, your standard annual allowance could be as little as £4,000 if you have an adjusted income over £240,000. Adjusted income is broadly your total income, plus the pension contributions your employer pays in for you.

Similarly, if you’ve taken a taxable income from your pension (not just tax-free cash), you might have triggered the Money Purchase Annual Allowance. This also restricts you to contributions of no more than £4,000 per tax year.

More about how much I can pay into a pension

2. Find out if you’re nearing the Lifetime Allowance

The Lifetime Allowance is a limit on how much you can build up in your pensions without getting a tax charge.

In the March 2021 budget, despite usual changes to this limit, the government confirmed that it will be frozen at £1,073,100 until April 2026. This means more people are likely to get caught by the Lifetime Allowance and will have to pay a hefty tax bill.

If you don’t know the total value of your pensions, it’s worth contacting your pension providers to find out. You’ll then have a better understanding of how much you’ve saved, and whether you’re nearing the limit. If you think your pension value might reach over £1,000,000 in the future, it’s worth talking through your options with a financial adviser.

It’s possible to get protection against the Lifetime Allowance, although this could mean you need to stop contributing to your pension. You can learn more about the Lifetime Allowance, how to get protection and the calculations you’ll need in our essential Lifetime Allowance factsheet.

3. Take a long-term approach to market volatility

We know it’s easier said than done, but successfully managing a pension during market ups and downs requires a level head and a long-term approach.

Anyone who’s invested in a pension for the long term will have gone through various bouts of stock market wobbles. This is the nature of investing. It can be worrying to see your fund value drop, but it’s worth remembering that markets often move in cycles. At times like these, it’s important to go back to basics and re-focus on your long-term plan. Investments can fall as well as rise in value so you could get back less than you invest.

4. Regularly review how much you can afford to save

It’s good to keep an eye on how much you’re contributing to your pension and increasing it wherever possible (as long as you stay within your annual limits). For instance, when you get a pay increase, bonus or even move job. Small increases to your pension contributions can really add up over time.

If you want to boost your pension contributions with HL, you can choose to make a one-off lump sum contribution to your SIPP from just £100. Or you can spread your contributions over the year with monthly investing from £25.

How to make a lump sum contribution

More on regular investing

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