Why are annual pension reviews so important?

The purpose of creating a pension plan is to help individuals reach a financially secure position by the time they reach their desired retirement age. For some, this might entail creating a financial plan for thirty or even forty years into the future. 

In an ideal world, this would involve individuals creating a savings plan in the early stages of their career and said plan remaining largely unchanged throughout their working life. However, we do not live in an ideal world, and life can throw spanners in the works.

Changing circumstances

If the previous two years have taught us anything, it’s that individuals’ circumstances can change at the drop of a hat – particularly when it comes to financial circumstances.

For example, during the first wave of the coronavirus in the first half of 2020, many employees nearing retirement found their plans turned on their heads. Indeed, research from My Pension Expert found that during this period, one in eight (13%) of employees aged 40-67 were forced to delay their retirement as a direct result of the pandemic. Meanwhile, almost a tenth (9%) of this age group was forced into early retirement. 

And whilst people may have been able to adapt their pension strategy in accordance to changes in retirement deadlines, further economic turbulence throughout 2021, driven by rapidly rising inflation and interest rates uncertainty, is likely to have made the adjustments of the year before unfit for purpose. 

The need to make sudden and, at times, extreme changes to retirement plans can cause a great deal of stress and anxiety. However, some of this stress could arguably be avoided by conducting regular reviews of their strategy. 

The benefits of annual pension reviews

Critically, regular pension strategy reviews enable people to monitor the performance of their pension fund or funds closely. This means that they will be able to identify an underperforming fund and take action to ensure their money continues to work as hard as it should be. Without such monitoring, savers may only discover such underperformance when it’s too late to make changes and find themselves in financial difficulty later down the line. 

Further, annual reviews enable savers to change their retirement strategy in accordance with their changing circumstances. For example, people may find their risk appetite changes and consequently wish to move their pension into investments that match their preference. 

Making these changes gradually means that, should a person be impacted by sudden economic volatility or a change in financial circumstances, they have placed themselves in a stronger financial position, so they don’t panic and feel forced to make dramatic changes to their plan. 

That said, the thought of conducting annual pension reviews may seem unnerving for savers. Luckily, they needn’t muddle through the process alone – advisers are always on hand to help!  

For example, at My Pension Expert, following a client’s initial pension consultation, our advisers conduct regular reviews of the retirement strategy to ensure it is meeting their specific needs and goals. Furthermore, if our advisers feel change is required, they will communicate this to the client and search the market to find alternative options that suit their financial goals and keep their money working as hard as possible. 

It is impossible to completely future-proof one’s retirement strategy. However, it is possible to place oneself in the strongest possible financial position to cushion the blow of sudden economic shocks. As such, savers would be wise to commit to annual reviews of their pension strategy. Doing so will certainly help them to achieve the financially secure retirement they deserve.