How to Manage Your Pension: A Practical Guide

How to Manage Your Pension in the UK: A Practical Guide

To manage your pension uk style — actively, with annual reviews and an eye on fees — takes less time than most people think and produces a better outcome than almost any other financial habit you can build. Most people pay more attention to their mobile phone contract than their pension. Given that your pension is likely to be your largest financial asset, and that the difference between managing it well and managing it poorly can run to tens of thousands of pounds, that's a significant oversight to correct.

This guide covers what to look at when you manage your pension in the UK, when to look at it, and why it matters.

Know what you have

The starting point is inventory. Before you can manage a pension effectively, you need to know where all your pots are.

If you've had multiple employers, you may well have pension pots with multiple providers. The Pensions Policy Institute estimates over £31 billion in pension savings are "lost" — not destroyed, but sitting with schemes their owners have lost track of as jobs, addresses, and email addresses changed over the years.

The Pension Dashboard is being rolled out progressively to help people see all their pensions in one place. In the meantime, the government's Pension Tracing Service allows you to search for schemes using an employer's name. Former employers' HR departments can also point you toward the relevant pension provider.

Once you know what you have, you can assess it.

Understand what you're being charged

Fees are the single most controllable variable in pension outcomes, after contribution levels.

Most pension managers charge a fee based on the value of assets they're managing for you. The difference between a manager charging 0.75% and one charging 0.5%, on identical investment performance, costs you roughly £20,000 over a 46-year accumulation period on a modest £2,000-per-year contribution schedule. On higher contributions, or larger existing pots, the numbers scale up considerably.

That 0.25% difference may not sound significant. Over a 46-year working life, it gets on for double in absolute cost terms, because the fee compounds against you just as investment returns compound for you.

You have a right to know what you're being charged. Check your annual pension statement — it should show the annual management charge as a percentage. If it doesn't, contact your provider and ask directly.

Modern workplace pension defaults and low-cost SIPP platforms typically charge between 0.1% and 0.4%. If your pension charges significantly more than this, the question of whether the additional cost is justified is worth asking.

Assess your investment performance

This is the other side of the fee question. You need your pension manager to be doing a good job relative to the fees they're charging.

Take the following example. Someone contributing £2,000 a year from age 20 to 66 with a "good" manager achieving 6% annual returns would retire with over £453,000. The same contributions with a "poor" manager achieving only 5% annual returns would produce just over £337,000. The choice of manager has cost the second person over £115,000 despite the return difference being only 1% per year.

This is not an argument for chasing last year's top-performing fund. Short-term performance is mostly noise. What you're assessing is whether your fund is doing what it says it does, over an appropriate timeframe, at a cost that's proportionate to the service.

Compare your fund's returns against a relevant benchmark — a global equity tracker fund, for example, should broadly track global equity market returns minus charges. If your default fund is a managed or blended strategy, check what index or peer group it's being compared against. Most fund factsheets show this.

Persistent, material underperformance versus an appropriate benchmark over a three-to-five-year period is a reason to consider whether a different fund or a different provider would serve you better.

Review what your money is invested in

Beyond performance, there's a straightforward question that few pension holders ask: what is my manager actually doing with my money?

Are they investing in industries or companies you'd object to? Are they voting on shares on your behalf at shareholder meetings — and if so, how? The last few years have brought increasing scrutiny of how asset managers exercise voting rights on behalf of pension scheme members, from climate change to executive pay to corporate governance. Most providers now publish stewardship and voting reports.

If you hold strong views on any of these issues, it's worth checking whether your pension reflects them, or whether a different fund option within your scheme would better align with your values. Most workplace schemes now offer some kind of ESG or ethical fund option alongside the default.

Check your contributions

Are you contributing enough?

Auto-enrolment sets pension minimum contributions of 8% of qualifying earnings — 3% from your employer, 5% from you. For most people, those pension minimum contributions won't produce a retirement income they'll be entirely comfortable with, particularly if they started late, had career breaks, or are aiming for a retirement earlier than 67.

The only way to know whether you're on track is to project forward. Most pension providers offer a rudimentary retirement projector on their online portal. They're imprecise, but they give you a directional answer.

If the projection looks short of where you want to be, the options are: increase contributions now, plan to work longer, plan to spend less in retirement, or some combination. Earlier is better — the compounding effect of additional contributions is largest when you have the most time left.

Also worth thinking about at this stage is how you'll eventually draw the money. Pension drawdown — leaving the pot invested and drawing income as needed — typically requires a larger pot than buying a fixed annuity, because the money needs to last an uncertain number of years. If pension drawdown is your likely exit route, your target pot size should reflect that.

Take particular care with defined benefit pensions

If you have a defined benefit pension — most commonly through the NHS, teaching, civil service, or armed forces schemes — it operates quite differently from a defined contribution pot. There's no investment performance to monitor in the usual sense. Your income at retirement is formula-based: years of service, accrual rate, and some measure of salary.

What's worth checking with DB schemes:

• What income will you receive at your scheme's normal retirement date?
• What are the terms for taking early retirement, and what reduction applies?
• Can you take a tax-free cash lump sum by commuting part of the income, and on what terms?
• What dependant's pension will your spouse or partner receive?

DB pensions are typically more valuable than their holders realise, particularly older "final salary" schemes. Transfer values can look large, but the income guarantee they represent is often worth more. If you're considering a transfer, for pots over £30,000 you're legally required to take regulated financial advice first.

Consider consolidating

Multiple pots means multiple sets of fees, multiple investment decisions to review, and multiple annual statements to track. Once you've found all your pots, assessed any guarantees, and checked for exit charges, pension consolidation into a single lower-cost scheme is often the simplest way to reduce charges and improve oversight.

The exception: defined benefit pensions, or any defined contribution scheme with a guaranteed annuity rate attached. These should not be transferred without care.

Annual review checklist

Once a year, run through the following:

Contributions: Are you contributing what you planned? Has your salary changed and automatically affected what's going in?

Charges: Has your provider changed its fee structure? Are you aware of any exit charges on older pots?

Investment performance: How has your fund performed against its benchmark over three to five years?

Investment allocation: Is your current fund choice still appropriate for your situation, age, and risk appetite?

Lost pots: Have you changed jobs since you last checked? Is there a new pot to locate and assess?

Beneficiary nominations: Are they up to date? Have your family circumstances changed?

State Pension forecast: Check it via the government's online service once a year. Are there gaps you might want to fill by purchasing voluntary NI years?

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Key takeaway: Managing a pension isn't complex, but it requires attention. The variables that matter most — fees, contributions, and investment selection — are all within your control. An annual review of each, sustained over a working lifetime, will produce a materially better outcome than ignoring everything until you're close to retirement.

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Frequently asked questions

How often should I review my pension?

At least once a year. The review doesn't need to be lengthy — 30 minutes checking your pot value, your contributions, your charges, and your investment allocation is usually enough. The key is doing it consistently, so you catch problems early and can adjust contributions if you're falling behind your target.

What should I check on my pension statement?

Check the pot value, the contributions going in (yours and your employer's), the annual management charge, and what funds your money is invested in. If the statement doesn't show all of these clearly, contact your provider directly.

How do I know if my pension is performing well?

Compare your fund's performance against an appropriate benchmark over three to five years, not just one year. A global equity tracker fund, for example, should roughly track global equity market returns. If your fund significantly underperforms its benchmark over several years, the investment choice is worth reviewing.

Should I increase my pension contributions?

If you're only contributing the auto-enrolment minimum of 8% of qualifying earnings, the chances are it won't produce a retirement income you'll be satisfied with, particularly if you started late or have career gaps. Even a 1% or 2% additional contribution sustained over many years makes a substantial difference.

What is a lifestyle or target-date fund?

A lifestyle or target-date fund is the default investment option in many workplace pension schemes. It holds a mix of growth assets (mainly shares) when you're young and gradually shifts to more cautious assets (bonds and cash) as you approach your target retirement date. It's a reasonable default but not always optimal, particularly if you plan to stay invested in drawdown rather than buy an annuity.