Workplace pensions can be a simple and effective way to build your retirement fund. They are typically taken directly from your pay packet and, along with the usual tax relief, come with the added benefit of employer contributions.
For many people, their workplace pension may be enough. But because they are typically set up and managed for you, it’s easy to leave your workplace pension on autopilot and lose track of whether it’s still meeting your needs.
So, even if you have previously checked in with your workplace pension and felt content with its progress, it’s a good idea to review it regularly to ensure it still aligns with your goals, risk tolerance, and retirement timeline, and that you’re getting the most you can out of it.
Read on to discover four reasons why it might be time to review your workplace pension.
1. Your pension is in a default fund with limited diversification
Most workplace pensions offer a default investment fund, which is where your money goes unless you actively choose otherwise.
These funds aim to be “one size fits all” and can be perfectly serviceable. However, if you’ve built up a large pension or are nearing retirement, they may not be best suited to your needs.
For example, if you’ve been with a company for a few years and have only built up a small amount – say around £10,000 – in the default pension fund, that may be adequate at the time.
However, if your pot has grown significantly – say to £400,000 or more – and is still invested in the same default fund, it may be worth reviewing your pension to ensure it’s properly diversified and aligned with your long-term goals.
A default fund can restrict your ability to align your investments with your specific goals or risk tolerance, which can potentially result in a pension strategy that’s not fully tailored to your needs.
2. Automatic “lifestyling” strategies may not work in your favour
As you near retirement, many workplace pension funds automatically move your money into lower-risk investments, such as bonds and gilts, to help reduce volatility. This is known as “lifestyling”.
The table below shows a typical lifestyling investment strategy, showing how the fund is gradually adjusted over the 25 years leading up to retirement.
Source: Financial Conduct Authority
While this approach has been favoured by providers for many years, bonds and gilts haven’t offered the stability they once did. Indeed, after the “Mini Budget” of 2022, some lifestyled pensions saw their value fall by up to 40%.
Moreover, the timing of the shift into supposedly less volatile funds is typically based on your age or the retirement date you set early in your career. If you decide to retire earlier or continue working longer than originally planned, your pension could be reallocated at an inappropriate time.
So, it’s important to regularly review your workplace pension allocation and to update your retirement date to ensure they still align with your plans.
3. You may have changed jobs, but not pension funds
When you change jobs, your workplace pension typically doesn’t move with you unless you actively transfer it. It’s easy to overlook these “inactive” pensions or assume they’ll automatically follow you to your next role.
Once a pension fund is inactive and no longer connected to your workplace, its investment strategies may no longer suit your current goals, and some could be sitting in underperforming funds or incurring unnecessarily high fees.
So, if you have multiple pensions from different employers, it could be worth consolidating your funds. This can simplify your finances and give you greater control over how your pension is invested.
4. You’re not maximising employer contributions
One of the key advantages of some workplace pensions is employer matching. This is where your employer matches your pension contributions up to a certain limit. So, the more you contribute (within that limit), the more they will too.
For example, if you’re contributing 5% but your employer is willing to match up to 10%, you’re missing out on additional pension savings and essentially turning down free money.
That’s why it’s worth reviewing your pension plan to ensure you’re making the most of any matching opportunities, especially if your financial circumstances have improved since you first enrolled.
A financial planner can help you review your workplace pension
Workplace pensions can offer a great starting point for building your retirement fund.
But if your pot has grown significantly, your circumstances have changed, or you’re nearing retirement, it’s a good idea to conduct a proper review, and the earlier you start planning, the better positioned you’ll be.
A financial planner can help you assess your workplace pension, align it with your long-term goals, and identify opportunities that could significantly boost your pot in the long term.
To speak to a financial planner, get in touch.
Email info@perennialwealth.co.uk or call 0117 959 6499.
Risk warnings
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
