Your pension statement, explained

A pension statement is an annual summary of your pension pot. It shows how much you have built up and gives you a projected retirement income.

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Your pension statement can seem complicated but it’s an important summary with a few key bits of information to look out for. Regularly checking your statements can be crucial to ensure you’re saving enough for retirement.

If you’re saving into a ‘defined contribution' pension, or you’ve saved into one in the past, your pension provider must send you a pension statement annually.

For other pensions such as ‘defined benefits’ schemes, you may not receive a regular statement, but you can (and should) request one from time to time in order to keep up to date with the benefits accrued. You should also ensure the pension provider has your current details.

Defined benefits vs defined contribution

Woman in glasses checks pension statement

First, let’s clear up what we mean by defined contribution and defined benefits.

  • A defined contribution pension is a pot of invested money, the size of which depends on two factors: How much you (and your employer if applicable) pay in and the investment returns you receive. Employees are usually ‘auto-enrolled’ into a workplace pension, which is most likely a defined contribution scheme, and you should keep up your payments into these as far as possible in order to receive contributions from your employer. Personal pensions such as SIPPs (or Self Invested Personal Pensions) are also defined contribution schemes.
  • Meanwhile, defined benefits pensions are a rare breed these days, especially in the private sector, but lots of people have entitlements to them even if they are no longer able to build them up further. These pensions promise a certain level of income from a specified age, and they are valuable because there is no investment risk to bear. The level of income will usually depend on your salary during or at the end of the employment and the number of years you have worked there.

What does a defined contribution pension statement tell you?

Defined contributions pension statements contain lots of information including the amounts paid in over the past year by you, your employer (if applicable), and by the government in the form of pension tax relief.

It will also show you the value at the start and end of the statement year – so you can see by how much your pension pot has risen or fallen. If it has fallen there is not necessarily any need to worry. It’s just one year out of many in the long journey towards retirement. Markets can fall sharply over short periods but usually, go on to recover given sufficient time. However, if you are close to retirement and looking to take money out of your pension in the near term then it may be worth reconsidering the fund choice in order to keep market volatility in check. The statement should show the funds you are invested in and their performance. If these are predominantly in share markets, you can expect larger ups and downs than if you have a spread of assets that balance things out.

As well as details of charges deducted, the statement should also include a projection of what you might get back at retirement. However, a number of assumptions have to be made to produce this figure and it should only be taken as a rough estimate – investment returns could be more or less, and you might retire earlier or later for instance. Nonetheless, it should provide a helpful guide. These figures provided will also assume that you use the pension fund to buy an annuity, which is guaranteed income for life purchased from an insurance company. You don’t have to do this and you can take your pension fund as a lump sum or series of lump sums – though bear in mind the tax consequences of whichever route you decide.

What does a defined benefits pension statement tell you?

Defined benefits statements will be centred around what your benefits will be if you work until your planned retirement date. Alternatively, if you have left that employment or the scheme is closed to building up more benefits it will express the preserved level of benefit you can expect at retirement age. It will typically state how long you have worked for your employer, the rate at which your benefits accumulate and your pensionable salary, which are all used to calculate your pension entitlement at the retirement age for the scheme.

What else is my pension statement used for?

You can use the information in your statement to help your planning. The figures are useful in calculating whether you are on track to receive the amount of income you need at retirement. While defined benefit schemes are formulaic according to the rules of the scheme, plugging the figures from defined benefit schemes into an online tool such as our pension contributions calculator can help you run different scenarios such as retirement ages and the effect of additional contributions. You should bear in mind that income from pensions is taxable, as are most lump sums taken beyond the first 25% of the pot, to a maximum of £268,275, under current rules.

For defined contribution schemes, your pension statement can also be an opportunity to review your investments and charges. Most pensions offer a variety of funds into which you can invest your money. By understanding where your money is invested, how these investments have performed, and the charges associated, you are better placed to consider whether these are right for your objectives and the level of risk you feel comfortable with.

Can I get a statement for my State pension?

Your State Pension is defined by how many years you have paid national insurance. You won’t get a statement for this but you can get a forecast through the website. This will tell you your state retirement age and how much you can expect to receive. If you aren’t on track to receive a full amount, there are options to increase it such as delaying the retirement age or making voluntary national insurance contributions.

Download your free Guide to Pensions and Retirement to help you understand how you can plan for the retirement you want.

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