There are a myriad of things that can go wrong with pensions, and some of them can be costly.
From not reclaiming the right tax relief to assuming old pensions are frozen, Claire Trott, director of retirement and holistic planning at St James's Place, outlines the things most often overlooked that can affect a person's pension savings.
1. Not making the most of employer contributions
Employers have a responsibility to provide a basic level of pension contribution for employees who are over the age of 22 and earning more than £10,000 per year, says Trott.
However, she adds, many provide much more than they are required to and to a wider group of employees than the regulations state.
"In many cases, if you pay more they will match this up to a certain level. This is free money on top of any tax relief you would get personally."
2. Reclaiming the correct tax relief
Where contributions are paid to a relief at source scheme, any higher or additional rate tax relief should be claimed.
This can be done using self-assessment, but if the only income received is PAYE then it can also be done by calling HMRC and giving details to adjust the tax code and get the relief through payroll, says Trott.
3. Using salary sacrifice where available
"Salary sacrifice can be a very powerful tool to build up pension benefits faster," says Trott.
Salary sacrifice contributions are taken from gross pay and paid as an employer contribution. This removes any need to make additional tax reclaims, if applicable, but will also reduce the amount subject to national insurance contributions.
Employers also make a saving on national insurance and will often pass on all or some of this saving by way of extra pension contributions, she adds.
4. Assuming old pensions are frozen
"Old pensions are not frozen, if they are a defined benefit scheme then they will likely have some increases applied annually so will still be increasing," says Trott.
"If they are defined contribution schemes, then they should be invested and are hopefully benefitting from some investment growth."
She says it is important to keep tabs on these old schemes and investigate the investment options for defined contributions schemes.
"The funds may remain appropriate, but often they will be sat in a default that may not be suitable."
5. Assuming all pension schemes offer the same benefits
Although legislation provides for the widest options on pensions, this does not mean that the schemes will provide all these options to their members.
Particularly old schemes may not have been updated to provide flexible income, or the widest range of death benefit options, Trott says.
"In life you can generally transfer when you want to access benefits, but death benefits must be dealt with by the scheme the pension is held in on death; if they don’t offer flexibility, it may mean reduced options for beneficiaries or even additional taxation if the options are only lump sums."
She adds: "On the flip side of this, many older schemes have valuable benefits, such are guarantees of income or protected tax-free cash.
