In Depth

Getting to grips with your pension savings

The Bank of England's chief economist has said he doesn't understand pensions - so what chance do the rest of us have?

Few aspects of personal finance strike fear into people’s hearts like pensions. Last week, Andy Haldane, the Bank of England’s chief economist, admitted that even he struggles to understand all the jargon associated with retirement savings.

“I consider myself moderately financially literate – yet I confess to not being able to make the remotest sense of pensions,” Haldane said at the New City Agenda annual dinner.

If one of the country’s top economists can’t understand pensions, what chance do the rest of us stand? More crucially, what does that mean for savings rates, which are generally agreed to be too low?

The thing is pensions really shouldn’t be that frightening – and I find it fairly concerning that the Bank of England’s chief economist struggles to understand them. Set aside a couple of hours and you should be able to get a clear understanding of your retirement savings, your state pension forecast and an overall picture of what you’ll be living on once you’ve clocked out of work for the last time.

The first thing you need to work out is how much money you are going to need in retirement. Many people make the mistake of thinking they need to replicate their working salary. But you probably don’t. You won’t need to pay for your commute anymore and most people pay off their mortgage before retirement.

Sit down with a couple of recent bank statements and credit card bills and make a list of your monthly outgoings. Once you have a list go through it and take out all the things you won’t be paying for after retirement and factor in what you want to be doing in retirement, for example golf club membership, or paying for a few trips.

Don’t forget that you can take 25 per cent of your pension pot tax-free so you might use that to pay off the last of your mortgage or clear debts.

Once you have a rough idea of the income you’ll need in retirement you can start seeing how you are going to create it. The first step is to get a forecast of your state pension. You can do this by calling 0345 3000 168 or there is a new online tool that is available to everyone, although it is still in the beta testing phase. You can find it here

After you have found out how much retirement income you will receive from the state it’s time to look at your private or workplace pension. This is where you will need to make up the shortfall.

You should receive an annual statement from your pension provider that will show you how much you have saved and what level of income you can expect to receive from it. If you can’t find it ask your pension provider to send out another copy.

While you are getting to grips with your pension make sure you haven’t got any retirement savings that you’ve forgotten about. It’s all too easy to sign up to a work-based pension in your 20s move jobs and forget all about it. Both the Pension Tracing Service and the Pensions Advisory Service can help you track down lost pensions.

Understanding your pensionWriter: Ruth JacksonWords: 500Commissioned by: Ashley Wassall for The WeekFew aspects of personal finance strike fear into people’s hearts like pensions.Last week, Andy Haldane, the Bank of England’s chief economist, admitted thateven he struggles to understand all the jargon associated with retirementsavings.“I consider myself moderately financially literate – yet I confess to not being ableto make the remotest sense of pensions,” Haldane said at the New City Agendaannual dinner.If one of the country’s top economists can’t understand pensions, what chance dothe rest of us stand?The thing is pensions really shouldn’t be that frightening – and I find it fairlyconcerning that the Bank of England’s chief economist struggles to understandthem. Set aside a couple of hours and you should be able to get a clearunderstanding of your retirement savings, your state pension forecast and anoverall picture of what you’ll be living on once you’ve clocked out of work for thelast time.The first thing you need to work out is how much money you are going to need inretirement. Many people make the mistake of thinking they need to replicatetheir working salary. But, you probably don’t. You won’t need to pay for yourcommute anymore and most people pay off their mortgage before retirement.Sit down with a couple of recent bank statements and credit card bills and makea list of your monthly outgoings. Once you have a list go through it and take outall the things you won’t be paying for after retirement and factor in what youwant to be doing in retirement for example golf club membership, or paying for afew trips. Don’t forget that you can take 25% of your pension pot tax-free so youmight use that to pay off the last of your mortgage or clear debts.Once you have a rough idea of the income you’ll need in retirement you can startseeing how you are going to create it. The first step is to get a forecast of yourstate pension. You can do this by calling 0345 3000 168 or there is a new onlinetool that is available to everyone although it is still in the beta testing phase. Youcan find it at www.tax.service.gov.uk/checkmystatepension.After you have found out how much retirement income you will receive from thestate it’s time to look at your private or workplace pension. This is where youwill need to make up the shortfall. You should receive an annual statement fromyour pension provider which will show you how much you have saved and whatlevel of income you can expect to receive from it. If you can’t find it ask yourpension provider to send out another copy.While you are getting to grips with your pension make sure you haven’t got anyretirement savings that you’ve forgotten about. It’s all too easy to sign up to awork-based pension in your 20s move jobs and forget all about it. Both thePension Tracing Service and the Pensions Advisory Service can help you trackdown lost pensions.~ENDS~

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