Making the most of your Annual Pension Estimate
If you have more than four months service, you should by now have received your Annual Pension Estimate (APE), and while it is never going to top the best sellers list, you should consider it a personal ‘must read.’ As tempting as it may be to file it away, or even drop it in the bin, remember your APE contains important information to help you plan your future. This article explains why.
People on average live longer and their expectations about quality of life continue to rise, so there has never been a more important time to think about how and when to save for retirement. If your plan is for your pension to replace the income you are no longer receiving, how will it compare?
This is where your APE helps, as it will help you to decide if you will be able to afford the standard of living you want, come retirement.
Why do I get an APE?
The government knows there is a growing need for people to understand their pensions and has made it compulsory for pensions administrators to send this information to you. Forty seven percent of people polled by the Office of National Statistics have no idea what their retirement income will be; do you?
Your Annual Pension Estimate lands on your doorstep each year and gives you an idea of what benefits you have earned to date and what your benefits may be if you stay in service to normal retirement age.
Are you on track?
It is important that you understand the information shown on your APE, as it will allow you to decide if your pension plan is on track to meet your needs, or whether you need to think about saving more. Think of your APE as a compass that shows you whether or not you are heading in the right direction to achieve the lifestyle you want at retirement. If you are not on track, there may be something you can do.
Information used in the estimate
Your estimate provides information such as:
- your section name;
- the date from which your benefits have been worked out;
- your retirement date;
- your final average pay;
- the single person’s final average basic State Pension; and
- your current BRASS funds (if you have any).
You can find essential information to use in your retirement planning on page three of your APE. Your estimate is worked out based on your pensionable pay. This may not be the pay you are currently receiving and used to seeing on your payslip, so remember to check the notes on your estimate, as they will tell you the date your pay information was taken from your employer.
To make the planning process as easy as possible you will find an average basic State Pension figure on your estimate. This has been taken from the Department for Work and Pensions and is an estimate of the State Pension you may receive when you reach retirement. Remember to include this figure when you are working out your potential future income.
Basic Scheme benefits
The Basic Scheme benefits section holds the information you need to plan for the future. Here you will find a lump sum and yearly pension figure. This is vital information as it gives you an indication of what you can expect at retirement. There is flexibility on how you can take your benefits, for example, you can increase the amount of tax-free lump sum you would like to take within the limits of HM Revenue and Customs, but this will reduce the pension you will receive. If you have access to the planner on www.pensionfriend.co.uk you can see what impact taking a greater lump sum will make on your pension or vice versa.
Preserved Benefits
You will see on your APE that there is a section about preserved benefits. These are the benefits you will receive when you reach retirement age, if you were to leave the Scheme at the time of receiving your APE; in other words, what you have accrued to date.
Dependant’s pension?
Although no one likes to think about what will happen to their family when they are no longer around, the APE gives an insight into what provision will be left for your dependants. A dependant is usually a husband, wife or civil partner who is living with you at the date you die. This person will receive a pension for life, and potentially a lump sum depending on whether or not you died while in employment. Pensions may also be payable to your children.
Nomination
In order to help ensure your loved ones receive the benefits, you must keep your Nomination Form up to date. You will find this on the Pension friend website or can request one by calling our helpline on 0800 2 343434.
BRASS- Additional Voluntary Contributions
The value of your BRASS holdings on a specific date are shown in your APE. The table clearly displays your fund choices and the value of each, so you can track progress. It is important to remember that pension savings such as BRASS are a long-term investment, and the value can fluctuate. Further details on your BRASS account can be found on www.pensionfriend.co.uk.
If you are not sure about any of the details shown on your APE you can contact our Helpline on 0800 2 343434. If you are worried that your savings are not likely to be enough to support your future needs, we recommend you speak to an independent financial adviser (IFA) about improving your pension provision. Remember, it’s never too late or too early to start contributing towards your pension, and there may be ways you can improve your provision, such as additional voluntary contributions (AVC’s) for example.