If you’re in employment, saving into a pension can be a lot like paying tax. The money comes out of your paycheque before it reaches you. You don’t have to do anything. In principle, you don’t even have to think about it. In practice, however, you should think carefully about it. With that in mind, here are some tips on how to keep your pension pot safe from common threats.
Getting lost
Realistically, most people are going to work for more than one employer over the course of their careers. Assuming you enrol in a workplace pension scheme whenever you’re eligible, you could end up with membership of multiple schemes run by multiple providers. Each one of those schemes is likely to have its own membership website with its own set of credentials.
The onus is on you to keep track of your pension pots (however many there are). There are tools to help you track down lost pensions but it’s advisable to avoid relying on them. Apart from anything else, if you don’t know what you should have, you’ll have no way of knowing whether or not they’ve found all your pensions.
This means that, tedious though it may be, you do need to keep a record of your pension schemes. You also need to make sure that your contact details are up to date. Similarly, make sure you know your pension providers’ domains and safelist them with your email provider. That way any emails should go to your inbox rather than your spam folder.
Tax
Pensions hit the news recently when Chancellor Rishi Sunak froze the lifetime allowance at £1,073,100 until April 2026. The lifetime allowance is how much money you can save into a pension over the course of your life without being hit by tax. While this may sound like a lot of money, retirement savings need to be substantial as they may need to last for literally decades.
What’s more, there is no guarantee of what will happen after 2026. On the plus side, however, the UK must hold a general election by no later than 2025. It’s reasonable to assume that whoever is Chancellor then will be expected to set out their plans for pensions in their manifesto.
Strategies for dealing with tax can be complex. They often depend as much on an individual’s situation as on tax laws. What’s more both of these can, and often do, change over time. It’s therefore usually best to get professional advice.
Divorce
When a couple divorces (or a civil partnership is dissolved), pension pots are considered amongst other assets. In fact, they can often rank alongside the family home as the most significant assets a couple owns.
You can’t (directly) protect against divorce but you can be realistic about the prospect. Prenuptial and postnuptial agreements are both highly likely to be respected by UK courts provided that they meet the criteria of valid contracts. In practical terms, this means that it’s best to have them drawn up by lawyers with each party having their own legal advice.
Keep in mind, however, that contracts are only valid as long as they are realistic. This means that they may need to be updated periodically. For example, you may have a prenuptial agreement before you marry and several postnuptial agreements over the course of your marriage.
Inflation
Inflation is probably the single, biggest threat to pensions there is. Really the only way to combat it is to save as much as you can and invest your savings as well as you can. Ideally, you should save for as long as possible. You should also use your savings carefully. Again, professional advice can be a great help in achieving all of this.
