Understanding your pension statement

According to our research, in the UK we’d rather vacuum our home than check our finances. And under 45s would rather clean their bathrooms!

An occasional review of our finances can help ensure we’re on track to achieve our financial goals. And with long-term finances, such as pensions, this review need not be every day or every week. With pensions, a good place to begin may be an annual review, and this can be helpfully prompted by the annual pension statement.

If you’re saving into a defined contribution pension, as most people are today, or you saved into one in the past, the pension provider(s) concerned must send you a pension statement on an annual basis.

You should get one for every defined contribution pension you hold – and today, it’s common for many of us to have a number of these types of pension. If you haven’t been receiving your statement(s), it may be because the pension provider(s) don’t have your most up-to-date address. If this is the case, get in touch with them to update their records. You could ask them to send your latest pension details at the same time.

Note: For the declining number of people in defined benefit pensions, it’s not mandatory for these statements to be sent annually. But you do have the right to ask for one regardless of whether you’re still building up defined benefits, or not. If you think you have a defined benefit pension, you can contact the administrator concerned, and they must supply you with your defined benefit pension details within two months of asking. The defined benefit statement should outline the prospective income it is set to provide when you reach retirement.

As a quick reminder, a defined contribution pension is a pension that’s based on how much money has been paid into it. The money paid into the scheme is typically invested by the pension provider. The amount available to you at retirement depends on how much has been paid in, the effect of any charges taken, and how well the investments have performed. Meanwhile, in a defined benefit pension, or sometimes referred to as a final salary pension, the money you get back doesn’t depend on investments, but is based on your salary when you retire and how long you’ve worked for that employer.

What your statement tells you

When you receive your defined contribution annual statement, it’ll include lots of valuable information such as:

  • The amounts paid in over the last year by you, your employer (if applicable) and by the government in the form of tax relief
  • The value of your pension pot at the start and end of the statement year
  • The details of any charges
  • The details of the fund(s) your money is invested in

The statement will also include a projection of what you might get back at retirement. You should consider this projection as a rough guess rather than an accurate expectation of what you’ll actually receive. No one knows what future investment returns will be, as they depend on a huge number of different economic factors. But, regardless, this projection can be a helpful indication upon which you can plan.

Using your statement

The information contained in your annual statement can be used in a number of ways. Here are three top tips:

  1. Planning
    Firstly, you can use the statement(s) to plan whether you’re on track to receive the amount of income you want at retirement. You can input the current value of all your pensions into retirement planning tools to estimate what you’ll get back at retirement, in total. There are many of these tools freely available on the internet, such as our Retirement Planner

    Tools like this also make assumptions about future investment returns. Like the projected values on annual statements, the projected values on these tools should also be regarded as a rough guess of what you’ll get back at retirement. But if you review your pensions annually, you’re more likely to achieve your desired income in retirement. 
  2. Charges
    Another thing you can use our annual statement for is to review the pension charges you’re paying. Charges can make a difference to the eventual income you’ll receive in retirement. 
  3. Investments
    A third thing you can use your annual statement for is to review your investments. Most pensions offer a number of funds into which you can invest your money. By understanding where your money is invested, how these investments have performed, and the charges associated with them, you’re better placed to consider maybe switching some or all of your investments elsewhere.

    As with transferring from one pension to another (action 2, above), switching investments will benefit from careful consideration. Typically, pension providers do not charge for such a switch, and typically a switch one day can be reversed the next. But, as with transferring, people who are thinking about switching often seek professional financial advice to ensure they’re taking the correct action. 

    As is often said when pensions are discussed, it must be remembered that the value of your pension could go down as well as up, and you could get back less than you invested

These actions – planning, reviewing your charges, and reviewing your investments – can be three positive steps towards better management of your pensions. The steps can be prompted annually when you receive your pension statement.

Many modern pensions allow us to monitor and manage our pensions online, whenever we want. For example, many of our pensions can be monitored as and when you choose via our online portal, MyAviva. If you haven’t already registered, you can sign up here.