Whatever stage you are at in your pension journey, there are some key factors to take into consideration. Lowes Adviser, Barry O’Sullivan provides some insights.

When we set up and pay into a pension plan, as long as we keep paying in over the long term, we could be excused for thinking that our pension planning is sorted. But that can be far from the case.

First, it is estimated that most people will accumulate several pensions, up to 11 according to the Association of British Insurers, before they retire. From final salary pensions, personal pensions to self invested personal pensions (SIPPs), knowing where our pensions are, the policy numbers and how much they are worth is essential when planning our retirement.

We also need to keep in mind and review where our plans are invested. Pensions are tax wrappers, inside which we will hold the investments that we want to grow over time to give us the income we need in retirement. Just as when we invest outside of a pension, we need to consider what risk we are prepared to take with our money, and invest accordingly.

Final salary pensions are usually managed on your behalf by the fund’s pension manager. Personal pensions usually offer a range of funds, including default funds, from which you can choose. But these can be limited. A self invested personal pension, as the name implies, allows you to select the funds you want to put in your pension, which you can manage or let an investment professional such as your independent financial adviser do so.

Ensuring our investments continue to meet our risk profile throughout our pension journey is essential. This can be especially important as we approach retirement, when usually we want to reduce our risk to maintain the gains we have accrued over the years.

We also need to have in mind the kind of lifestyle we want in retirement and set our pension investments to help us achieve that goal. This means reviewing our pension pot(s) at regular intervals. Planning is the only way to know how much you need, how much to save, and how to make the most of what you have when it comes to retirement.

Consolidating pensions 

Two other things to consider are whether it is worth consolidating your pensions into one, and where your pension sits within your overall financial plan.

Managing multiple pensions can be very difficult and there can be a case for consolidating some pensions into one, but it does require a great deal of consideration. Consolidating can make your pension assets easier to manage. It can mean moving older pensions into a more flexible wrapper and/or one with lower costs, as well as into better investments.

There are caveats to this, one of which is where a pension has built in guarantees or protected benefits which cannot be replicated in a new pension. Also, where your pension sits within your overall financial plan, notably in passing on your wealth to your beneficiaries.

Until recently, pensions were considered to sit alongside the state pension as the main source of income in later years. For many people that will still remain the case. However, for anyone who will have sufficient income from some or most of their pensions, or their other investments, the pension freedoms rules provide the option to pass on a pension to their beneficiaries outside of their estate when it comes to inheritance tax. This is tax free if the benefactor dies before age 75 and at the beneficiaries’ marginal rate of tax after age 75. This can make them a tax efficient way to pass on our wealth.

An important point here, however, is that not all pensions have this flexible arrangement as part of their policy rules. This can apply to any personal pension taken out before 2015 when the Pensions Freedoms – including the new death benefits – became law. It is crucial to check with your pension provider to see if their rules incorporate the new legislation.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.