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Mistakes to avoid when building your pension

Whether you’re just starting out in the working world or are approaching retirement, you should be considering your pension. It doesn’t need to be a matter of concern though. This blog post will help you avoid common mistakes when it comes to building your pension.

Mistake 1: Leaving it too late to start saving into a pension

Recent data shows that one in 6 people over the age of 55 in the UK have no pension savings (Unbiased). In your late teens to early twenties, and starting work after finishing your education, retirement can seem a world away. It can be easy to delay thinking about your pension until later in life. This can be a mistake!

Logically, the later you leave it to start saving for retirement, the less time you have to save. Therefore, the less funds will be available in your pension pot upon retirement. Conversely, you can give your pension pot the best chance to grow, by starting investing into it early in your working life.

Mistake 2: Failing to take advantage of employer contributions in workplace pensions

In 2012, the government brought in auto-enrolment for workplace pensions. This has had some success in ensuring employees are not just relying on the state pension in retirement. To be eligible for auto-enrolment in workplace pensions, you must:

  • be classed as an employee (not a contractor, for example)
  • be between the ages of 22 and State Pension age (currently 66)
  • earn at least £10,000 per year pre-tax
  • have your usual place of working within the UK

The minimum that can be contributed to a workplace pension is 5% from the employee and 3% from the employer. Many employers will offer contribution matching as a benefit. If this is the case, and if you can financially, you should pay the maximum contribution allowable in your plan. You’ll then get the most from your employer contributions. Whatever your employer’s contribution, this is money added to your pension pot without it impacting your finances.

Mistake 3: Relying on the State Pension

It can be easy to think that the State Pension will supplement you through your retirement. In early April 2024, State Pension payments rose to £221.20 per week. That equates to just over £11,500. For many this will not be enough to maintain their standard of living from during your working years. To do this will require additional financial income.

It’s also important to remember that the State Pension is reliant on the state of the economy. There is no guarantee that by the time those starting work now retire, a State Pension will be offered. Investing in a private pension throughout your working life will ensure you are not reliant on the State Pension.

Mistake 4: Losing track of pensions when you move house or jobs

Last year we shared that around £37bn in pensions are lost in the UK. This has now raised to an even higher level. But how do pensions become lost? Workplace pensions are organised by employers or their representatives, so employees may not know the details of the pensions. This can mean employees don’t know who to inform if they move jobs or change address.

Pension pots can be forgotten about if there are not physical reminders – out of sight, out of mind. So, if pension statement letters aren’t being sent to the correct address, it’s easy to lose track of them. Did you know – if pension pots are left unclaimed 6 years after retirement age, individuals are no longer entitled to it. So it’s important to find any lost pensions to be able to claim the money at retirement.

All is not lost, though. Willday Wealth Management can help you locate lost pensions. Simply fill in our Get Started form and we’ll contact over 100 pension providers for you, to find your pensions.

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Mistake 5 – Not ensuring your money is working hard for you

Not all pension schemes are equal. As with all investments, some will provide a greater return than others. Your money may grow at a quicker rate in some schemes than others. If you are not monitoring your pension scheme and comparing it to others within your comfortable level of risk, you could be missing out.

Note: With investing, your capital is at risk and you may get less back than you invested.

How Willday Wealth Management can help you build your pension pot successfully

We will work with you to determine your retirement plans, including when you aim to retire. We’ll manage your portfolio around your target date, reducing your risk as the date approaches.

You’ll have an expert by your side to help you work towards your goals. Your personal investment consultant is on-hand over the phone, email or in person to help you get the most from your pension and overall investment plan. We’ll help you navigate tax relief at source, and guide you through drawing down from your pension, tax-free, from age 55. We can also help you to transfer and combine pensions for easy maintenance. Plus, our app allows you to monitor your pension pot’s progress, so there’ll be no nasty surprises on retirement.

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