If you're saving for retirement, it makes sense to be sure you're on track, especially if you have specific goals in mind. 

Everybody wants to make the most of their pension investment. Reviewing your savings every so often will help you calculate how much your retirement nest egg will generate. 

 

Where to begin 

Start by calculating your potential sources of income in retirement. The main sources are: 

The State Pension

You should request a State Pension statement to see how much you have accrued. To do this, you can apply by post or over the phone. There are also further details on the government website.

If you're aged over 55 and are due to receive the new State Pension, your statement will tell you how much your pension will be worth – this is based on your national insurance history.

New State Pension statements are being released to those aged under 55 in stages; your statement at present will show your entitlement under the current system if you're aged under 55. However, it's still worth your while applying. 

Defined benefit pensions (career average)

A defined benefit pension pays you retirement income based on your salary and your length of service for your employer. This kind of pension may also be known as a ‘final salary’ pension scheme. Normally, it will only be public sector workers who receive these.

If you do have a defined benefit pension, you will normally be given an annual benefit statement from the scheme, however if you do not receive such a statement you can ask for one. Your statement will show you how much pension you may be entitled to – however it may or may not make assumptions about whether you take a cash sum on retirement.

Defined contribution pensions (money purchase)

This pension scheme is one in which you accrue a pot of money to use as retirement income. Your pot value will be based on yours and your employer’s contributions, any investment return or tax relief.

Your annual statement will approximate what your annual retirement income is likely to be if you converted the pot to annuity.

What should I do next? 

In addition to the pensions listed above, you may have other savings and investments that can generate income in retirement, for example, shares or rent on a property you let. You should calculate this additional income in order to get an accurate forecast of your retirement income and then compare this to your retirement income goal.

If you're on track with your retirement savings you now have peace of mind, however, remember to check again in a few years as your circumstances may change. If you're not where you want to be, you now have an accurate forecast and can work towards saving a little more.

Make your pension work harder for you!

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