It may be one of the most valuable documents you receive each year – and one of the easiest to ignore.
Your annual pension statement is effectively a progress report for potentially decades of future income.
A defined contribution statement will typically show how much your pension is currently worth, the contributions made, investment growth or losses, charges and an estimate of what it might provide at retirement.
Rather than filing it away, five minutes spent checking a few figures can tell you a surprising amount.
Start With the Money Going In
Look at your contributions and your employer’s contributions.
Do they roughly match what you expected from your payslips? Are there unexplained gaps? If your employer offers increased contribution matching, are you taking full advantage?
Next, look at the current value – but don’t become obsessed with its movement over a single year. Pensions are long-term investments and values will fluctuate.
Now Find the Important Number: The Forecast
Your projected retirement value or income is arguably more useful than simply knowing today’s balance.
Royal London, for example, explains that its annual statements show pension performance, contributions and plan value, while projections use the member’s expected retirement date to indicate what continued saving might produce.
The crucial word is projected. This isn’t a promise. Investment returns, inflation, contributions, retirement age and eventual retirement choices can all change the outcome.
Check the retirement age being used too. A forecast calculated on retirement at 67 isn’t particularly useful if you’re planning to stop work at 60.
Finally, find out where the pension is invested and what charges apply. Workplace default funds can be entirely appropriate, but you should at least know that you are in one and broadly understand what it is designed to do.
