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In the dark over pensions? What you don’t know could haunt you later

Lots of people aren’t sure what happens to the money in their pension – and it could cost them later on. We shed light on the pension basics to help you get yours on track for retirement.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Your pension shouldn’t be a void into which some of your money disappears each month. And yet a surprising number of people have no idea what happens to the money they pay in.

Our survey shows just how many of us are in the dark when it comes to pensions.* We spoke to just over 1,500 people, and found that:

  • Only 1 in 3 people who haven’t retired yet know what their pensions are worth.
  • 1 in 3 of them have a clear idea how much income they’ll need in retirement.
  • 34% of those with a pension don’t know whether it’s invested in the stock market.

Getting to grips with your pension

It’s hardly surprising if your pensions are a bit of a mystery. We didn’t have a ‘pensions 101’ class at school, and it’s hardly commonplace for parents to give their children “the pensions talk”.

The problem is that if you don’t get your head around pensions, you could pay a terrible price for it in retirement.

The only way to make sure your pensions are on track is to get to grips with the mechanics of how they work. So we’ll take you through things step-by-step.

This article is not personal advice. If you’re unsure of what’s right for you, please seek advice.

Step 1: Learn the basics

Pensions have a reputation for being complicated.

There’s plenty of information on our website which explains how pensions work in simple terms. You could also try the Money Advice Service or the Pensions Advisory Service.

Pensions: explore the basics

If it’s a workplace pension, speak to your employer. They’ll be able to tell you about your company pension and should have information on how it works. If working your way through guides doesn’t appeal, ask for a meeting where someone can explain it properly for you.

Alternatively, given the amount of money involved and what’s at stake, this could be one of the times in life when it’s worth considering getting financial advice.

Step 2: See what your pension’s worth

You might need to dig out old paperwork to see how much you’ve currently got saved up. If you can’t find any information on your pension and aren’t sure which company it’s with, try the pension tracing service.

It can be hard to keep track when you’ve got pensions scattered around different companies. To make life easier in the future, you could think about moving any old workplace or private pensions into one place.

It might be possible to bring all your pensions to HL so you can see what your pension is worth online or using the HL app. But before transferring, you’ll need to check that you won’t lose valuable benefits and whether your current provider will charge you exit fees.

More on transferring

Next, check that you’re on track for retirement using a pension calculator. You’ll be able to see how much you could receive at retirement, based on your current pension value and how much you’re paying in each month.

How much will I get at retirement?

Step 3: Find out what is actually happening to your money

Broadly speaking, your pension is likely to be invested in the stock market. Unless you have a defined benefit scheme (such as a final salary scheme), this means the money you get at retirement will depend on how your investments perform. Your retirement income isn’t normally guaranteed, and there’s always the risk that you could get back less than you put in.

Only one in three people we asked who had a pension knew that it was invested in the stock market. The rest said it wasn’t or they didn’t know.

Not knowing what’s happening to your money could come back to bite you. If you ignore your pension because you think it’s safe, you might be in for a bit of a shock at retirement.

That’s why you need to find out what’s happening to your money. It’s likely that it’s invested in the stock market , but you can see for certain by looking through your paperwork or speaking to your provider.

Step 4: Shed light on your investments

You should take the time to learn about where your pension is invested by checking online or looking at a recent statement. By looking at how your investments have performed and the level of risk involved, you can decide whether they’re right for you. If you’re unsure of the suitability of any investment, you should ask for advice.

But you don’t have to settle for just one investment. Choosing a number of investments can help you diversify and spread risk. Remember, all investments will fall as well as rise in value so you might not get back what you invest.

Most pensions will give you alternative investment options, but these can often be restricted to only a handful. For a wide range of options, you could consider a Self-Invested Personal Pension (SIPP). With a SIPP you have a wealth of different investments to choose from. Why not have a look at our investment ideas.

Our guide to Self-Invested Personal Pensions

*HL survey conducted by Opinium April 2021, 2,000 respondents.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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