Pension Awareness Week – Are you on track for the retirement you want?

With Pension Awareness Week taking place from 15 to 19 September, now is the perfect opportunity to take a fresh look at your retirement planning.

Pensions are easy to put on the “I’ll deal with that later” list, but with people generally living longer, retirement potentially lasting several decades and major changes to Inheritance Tax rules on the horizon, there has never been a better time to review whether your pension remains fit for purpose.

For many people, pensions are one of their largest financial assets, yet they are often among the least understood. After all, pensions can accumulate quietly in the background for years while we focus on mortgages, careers and family commitments.

As working lives become more flexible, it is increasingly common to build up several pension pots from different employers. If you’ve changed jobs several times, there is a chance you may have pensions that you’ve lost track of altogether. Pension Awareness Week is an ideal reminder to find out what you have, where it is invested and whether your current contributions are sufficient to support the retirement lifestyle you want.

It’s also worth remembering that pensions remain one of the most tax-efficient ways to save for retirement. Contributions generally benefit from tax relief, meaning the government effectively boosts what you save. Yet many people are still unaware of just how valuable this benefit can be. Making the most of available tax relief can have a significant impact on the size of your retirement fund over the long term.

The State Pension is an important foundation for retirement income, but it should rarely be viewed as a complete retirement strategy.

For the current tax year, the full new State Pension is £241.30 a week, or just under £12,550 a year. While this provides valuable guaranteed income, many retirees will need additional savings to achieve the lifestyle they want in retirement.

To qualify for the full new State Pension, you’ll usually need 35 qualifying years of National Insurance contributions or credits. If you’ve taken career breaks, worked abroad or had periods of lower earnings, it is worth checking your State Pension forecast www.gov.uk/check-state-pension to identify any gaps and understand what you may be entitled to receive.

The State Pension should be viewed as a starting point rather than the finished product. The key question is whether it will provide the level of income you need to live comfortably throughout retirement.

One of the biggest retirement planning mistakes is focusing solely on the size of a pension pot rather than the income it may provide.

The latest Retirement Living Standards from Pensions UK provide a useful benchmark for understanding potential retirement costs. For a one-person household, a Minimum retirement lifestyle is estimated to cost around £13,900 a year, a Moderate lifestyle around £32,700, and a Comfortable lifestyle approximately £45,400. For two-person households, the equivalent figures are £22,500, £45,400 and £62,700 respectively.

The standards help illustrate the gap between what the State Pension provides and the income many people aspire to have in retirement. They include everyday spending, leisure activities and holidays, but exclude housing costs.

Of course, everyone’s circumstances are different. Your retirement goals may include travel, pursuing hobbies, helping family members financially or simply having greater freedom and flexibility. Understanding the lifestyle you want is often the first step in determining whether your current savings strategy is on track.

One of the most significant pension developments in recent years is the government’s proposal to bring most unused pension funds and death benefits within the scope of Inheritance Tax (IHT) from 6 April 2027.

Historically, defined contribution (DC) pensions have often been attractive not only as retirement savings vehicles but also as estate planning tools because they generally sat outside an individual’s estate for IHT purposes. The changes could alter that position significantly.

Unused pension funds could be included when calculating the value of an estate on death. This means some families who previously expected pension savings to pass outside their estate could find more of their assets exposed to IHT. As IHT is typically charged at 40% on assets above available allowances, the impact could be substantial for some beneficiaries.

The government has stated that the changes are intended to ensure pensions are primarily used to support retirement income rather than being used as a tax-efficient vehicle for passing wealth between generations. The proposals would also create greater consistency across different pension arrangements.

The changes will not affect everyone equally. However, they may be particularly relevant if you:

The standard IHT nil-rate band remains £325,000, while additional allowances may be available in certain circumstances, including the residence nil-rate band when passing property to direct descendants. Married couples and civil partners may also be able to transfer unused allowances between themselves. However, once pensions are included within an estate, some families may find that their total assets exceed available thresholds when they previously would not have done so.

As a result, many individuals may wish to revisit both their retirement and estate planning arrangements well before the changes take effect.

Pension Awareness Week is the perfect opportunity to ask yourself a few straightforward questions:

You don’t need to have all the answers immediately. The most important thing is starting the conversation.

A financial adviser can help you understand your current position, assess whether you’re on track for your retirement goals and review how evolving pension and tax rules may affect your plans. They can also help you explore options around pension consolidation, retirement income planning, tax efficiency and estate planning.

Whether retirement is decades away or just around the corner, Pension Awareness Week provides a valuable reminder that small actions taken today can make a significant difference to your financial future. The sooner you review your plans, the more opportunity you’ll have to make adjustments and keep your retirement objectives on track.

The value of investments can go down as well as up, and you may not get back the full amount invested. Tax treatment depends on individual circumstances and may change in the future. Gifting and trust strategies can have tax implications and may not be suitable for everyone. The Financial Conduct Authority does not regulate Will writing, tax and trust advice and certain forms of estate planning.