7 min read
Pensions for Individuals

How do I know if my pension is doing well?

Izzy Larsen
22/09/2021

You save into a pension in the hope that it’ll be enough to provide you with the lifestyle you want when you retire. But how much is enough? And how can you judge whether you’re on track? It’s never to early to think about these things – it might even give you the extra focus to add a little more.

To start with, you can use a retirement calculator or financial planner (there’s one in the Maji app) to help you understand how much you’ll need in order to live the way you want when you retire. This gives you a goal to help you focus, but also a comparison point, so you can consider whether your existing level of savings are going to reach your target. Pension providers usually include an ‘estimated retirement’ income or pot size on annual statements which you can use to help you judge your progress too. Compare your expected pension with what you need, to work out whether there’s a shortfall.

Then, you want to make sure you are making the most of the pension you do have. Here’s the top things to look at:

  • Are you taking advantage of the best pension offering your employer provides? Some employers offer much more than the minimum employer contribution required by law. Some match contributions up to a certain limit. Understanding what’s on offer, and whether you can receive more by adding more yourself can make a big difference.
  • Are you receiving all the tax benefits you’re entitled to? When you pay money into your pension, the government adds a top-up too – it’s known as tax relief. It’s the government’s way to encourage people to save for their future. But, if you pay a more than the basic income tax rate, you might need to claim extra from the government yourself. You can find out more here
  • Is your pension growing well? You put it into a long-term savings product like a pension in the hope that over time your money will grow. This is called investing, where your money is put together with thousands (or millions) of other people’s money into an investment fund. The investment fund then ‘lends’ money to governments and companies with the hope of getting more back. It’s worth exploring this a bit more…

Investing for long-term growth

You might hear a lot about financial performance when it comes to pensions and investing. This is how pension providers report on the total financial performance of investment funds. Here’s a quick overview to help you understand fund performance.

Every pension provider offers a range of investment funds, some may only offer a handful of funds to choose from, while others will have hundreds. Each of these funds is made up of a mixture of different investments. The investments are designed to grow in value and the potential for growth is linked to risk – high risk investments have the potential to grow quickly but are also more likely to fluctuate in value in the short-term. Whereas lower risk investments usually offer a steadier growth over a longer period. The reason there are so many funds is that there are lots of ways to mix all the assets together, so different funds mix them up in different ways.

It can seem overwhelming looking at choices of funds – with a workplace pension you don’t need to worry about choosing as there will be a default. This is a fund that your money will automatically be invested in.

How do I know if the performance is good?

Your pension provider will be able to tell you how much your pension pot has grown from one year to the next. You could ask them how much of that increase is based on investment growth. It is worth mentioning that pension investments can fluctuate a bit over a short-term period, and a period of growth (or loss) doesn’t necessarily mean it will continue to grow at the same rate. In a pension you’re looking for growth over the long term – as a general rule of thumb you should check your fund performance about once a year, and a bit more regularly as you approach retirement.

Understand. To understand how your investments are performing, you’ll need to know what fund you’re invested in. Then you can look at the providers fund fact sheets – they tell you how well the fund is performing as a percentage. 

Compare. Check that figure against a benchmarka pension fund is designed to outperform cash saved at a bank. You can also compare it to other funds availablethis will help you get a clear picture of how other funds are performing. Don’t forget to consider the risks involved. The riskier the fund, the more likely you are to lose money, so if you want to pick your own fund it’s a good idea to think about the level of risk you find acceptable when you pick your fund.

How can fund performance impact my savings?

Investments are designed to outperform cash saved at the bank over the medium to long term. Here’s a comparison of how investments are expected to grow over the long-term against how cash will perform with the current interest rate. The earlier you start, the longer your savings have to grow. Investing over a long period of time can be great for boosting your wealth and your pension.

Is there more to a pension than fund performance?

A fund valuation gives you a single snapshot of the value of your pension pot at that point in time. You can keep an eye on all your pension accounts through Maji. There is a saying that goes – ‘cost is what you pay, value is what you get’. The same applies to pensions.

So, whilst the idea of a pension is to save as much as you can for your money to grow as best it can – fund performance and looking at charges are only one way to look at the performance of your pension. You might also want to consider…

  • Commitment to greener pensions from your provider
  • Customer service you receive if you need to contact them
  • Easy administration when you want to change anything
  • Support as you approach retirement

What should I do now?

The best thing you can do is spend some time getting to know your pension, how much you’re saving and where. There’s no need to think about switching funds if you’re unsure of where you want to move to. More than 80% of people don’t move out of the default fund offered by their pension provider – they are designed to work for the majority of savers. Join our Masterclass with wealth coach Eirin Holmeide on Investing for your Long Term Goals, on Monday 4th October, to learn more about managing your money for your future!

The most important thing to do is make sure you’re saving enough – you’re  likely to spend more than twenty years in retirement, so making sure you’re on track to be able to afford the retirement you want is great idea. 

Photo by James on Unsplash

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