7 December 2021

Pension Pitfalls: Part 1 – Pre-Retirement

News & Insights

Liz Schulz

Pension Pitfalls: Part 1 – Pre-Retirement

This three part ‘pension pitfalls’ mini-series is intended to highlight some of those areas which we feel can catch individuals out when it comes to their pension planning, or could mean that the tax advantages of the pension aren’t being fully utilised.

  1. Underlying Investments

We find that many individuals are not aware of how their pension is invested, let alone knowing whether this is appropriate for them. There is no ‘one size fits all’, and the strategy which is suitable for you should take into account factors such as how much involvement you want to have, your wider wealth position, your timeframe to retirement, your investment experience, your tolerance for value fluctuations/losses (risk) and how you intend to draw income in the future.

The underlying investments within pensions are typically into ‘funds’, structures which have multiple diversified investments within them. Allocations within these could be into a combination of asset classes including equities (company shares), fixed income (bonds/gilts), cash, property or commodities. Each of these asset classes has a different risk/return profile, and therefore offers different growth potential. Workplace pensions tend to have a ‘default strategy’ which is set at scheme level and often has a mixture of each of the asset classes within it.

It’s important to take the time to understand how the current strategy aligns with your views, as well as assessing options available and whether something alternative could be more appropriate (either through your own research or with professional assistance). Investments carry risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

  1. Pension Access Age

It has recently been announced that the minimum pension access age will rise to 57 (currently 55) from April 2028 – this will therefore automatically apply to any individual born after 5th April 1973, and for those born between 5th April 1971 and 5th April 1973 it will apply if benefits aren’t drawn between their 55th birthday and 6th April 2028.

Some schemes will offer the protected right to take benefits at age 55 (if an ‘unqualified right’ was already written in the scheme rules), but there is no longer the option to transfer into a scheme which offers this before the change comes into force as the window to do so was closed in a follow-up to the 2021 Autumn Budget.

This rise to age 57 will keep a 10-year gap between that and the UK state pension age, which is in the process of both equalising between men and women and rising to 67.

  1. Keeping Track of Older Pensions

One of the common questions we get asked in relation to pensions is to do with the sheer number of them that people accumulate throughout their working lives, especially where a number of job changes have been involved – now that auto-enrolment into pension schemes is mandatory for employers, this is something we expect to continue seeing.

As each pension will have a value to you and your retirement (either by way of an invested pot or detailed as an income stream for life), it’s vital to keep on top of each plan by keeping your own personal details to hand (e.g. plan number/website log-in) as well as a record of the pension provider/scheme administrator.

If you are struggling to locate details on one of your schemes, GOV.UK has launched a helpful tracing service which can be accessed here: Find pension contact details – GOV.UK (

  1. Pension Nominations

Each pension you hold should have a nomination form attached to it, which details your intentions for distribution of the value on your death. A common misconception is that your Will would guide this distribution, but as (under current legislation) pensions don’t form part of your ‘estate’ on death, this isn’t the case.

Your pension provider will be able to provide you with a nomination form for completion, with each of these varying slightly in format – it’s common to see an initial section which can be completed with names and %’s, followed by a free text section in which further guidance can be given (e.g. should the named individual pre-decease you or feel that they don’t require the full amount involved).

As well as ensuring that a completed form is held, it is important to regularly review this to ensure it is up to date and continue to reflect your current wishes.

  1. Death in Service Cover

Death in service (DIS) cover is a benefit provided by many employers for their staff members, and is often quoted as a multiple of salary (e.g. 3x, 4x) which is paid out to nominated beneficiaries. Some of these DIS schemes when written on a group basis are subject to the rules of registered pension schemes and for this reason, their value will be taken into account for any pension lifetime allowance calculations.

The lifetime allowance currently stands at £1,073,100 (for 2021/22) and any pension value above this limit will be taxed. Tests for the lifetime allowance can occur at multiple times during an individual’s lifetime, including when pension income commences, at age 75 and on death.

There are ways in which a DIS policy can be written on an induvial basis rather than on a group basis, and this would mean that they aren’t subject to the same pension rules. If you feel this is something that could be relevant, I would suggest speaking to a financial adviser in order to help navigate the complexities involved.

Whilst knowledge is power, the best way to naturally avoid any of these pitfalls is to take financial advice along the way from a pension specialist. Five Wealth Ltd offer independent financial advice to a wide variety of clients, at various stages throughout their investment and retirement planning journey. If you feel that our expertise would be beneficial to you, please get in touch.

Please keep an eye on our blog posts/linked in to see parts 2 and 3 of this ‘pension pitfall mini-series’, specifically focusing on considerations for high earners and those approaching retirement.