‘So, who runs your pension at work?’ I ask my friends over a couple of pints at my local seaside pub. I was met with shrugging shoulders, blank faces and wincing faces… after three (and a bit) decades, the fact we were talking about pensions in the pub meant we were officially… grown-ups.
There had been talk of marriages and mortgages before, but somehow pensions in the pub was significant. The fact that my friends knew absolutely nothing about pensions was inspiration for this new blog series Dude, where’s my pension? This is the first in the series. Welcome. Let’s get cracking.
What’s in my pension?
A few things became pretty apparent. Everyone knew pensions are important and everyone was pretty sure they got one when they joined their employer.
But hardly anyone knew how much they put into it, who ran it or what they might get at the end of it, and no-one could say what their money was invested in. And that’s because it’s often very difficult to find this information on workplace pension websites.
This blog series aims to fix that and more. We’ll be lifting the bonnet on workplace schemes, providers, highlighting good and bad practices, and generally helping consumers make the most of their pension savings.
DB or DC pensions
If you work for a company, you’ll have a workplace pension. If you’re an older worker, it may be a defined benefit (DB) pension, which pays you a percentage of your salary depending on how many years you’ve worked. It’s a fixed amount and will also go up each year.
The other type of pension is a defined contribution (DC) pension. DC pensions are much more common nowadays. If you’re under 40, you’re probably in a DC pension. With DC pensions, what you see is what you get — your pension pot will be the sum of your contributions, your employer’s contributions and any tax relief.
With DC pensions there are no fixed amounts and you won’t know in advance how much you’ll get as you do with DB pensions. It will depend on how much and how long you invest for and how your investments have performed. If you start early, contribute as much as possible (at least 10% of your salary) and the money is invested wisely (you need to take some risk), you should be able to build a nice little nest egg to fund your retirement.
Your company pension
To find out who runs your company pension, speak to people who know about that sort of thing. A good place to start is your HR department, on your company intranet, or your boss.
When you joined the pension scheme, you may have chosen the investments or maybe they were chosen for you. If you can’t remember, you were probably put into a default pension fund. It’s not a good idea to be in the default fund as that tends to be very cautious.
The funds in your pension invest in shares of companies all over the world. By investing in lots of companies and spreading the risk, it means you fund isn’t reliant on the performance of a particular company, economy or area of the world.
As pension funds invest on behalf of members, it means that you are a (tiny) shareholder in some of the biggest companies in the world. Something to consider when people complain about greedy shareholders in large companies!
You can find out what your pension fund is called from the pension statements you receive from your pension provider. Often, they’re called something like:
‘[Your company’s/pension provider’s name] Pension Fund [the year you’re expected to retire]’
Here’s an example of a pension fund name from of one from the UK largest workplace pensions providers, Nest.
This is the name of the basket, but not the eggs. To find out what your eggs are, you can usually login through your provider’s website and download a recent statement. If you can’t find it, you can get in touch with your pension provider and ask a few of questions:
Dude (optional), what are the underlying funds in my pension fund?
Can you send me fund factsheets for the funds in my pension?
Can you send my latest pension statement?
Once you’ve got either (or both) of those bits of information, the next part is working out what it all means. Thankfully, the pub session I mentioned at the beginning led to me sitting with a few of my friends and helping them understand their documents. The focus of the next blog is to share what we found and help you understand yours.
Grab your papers and join us.