What to do with your pension ahead of the Budget: Four steps that are unlikely

Waiting to find out what is actually in the coming Budget before you make any big decisions about your finances is a perfectly respectable choice.

But if you decide it is wiser to pre-empt any unwelcome news, it’s better to err on the side of doing things that make good financial sense whatever is announced on 26 November.

Most concern is focused on changes to pension tax-free cash, but bear in mind that if you withdraw this money unnecessarily you could be damaging your prospects of future investment growth based only on speculation.

Fears of a raid were not realised last year, and tax-free pension withdrawals will be irreversible should nothing happen again this time.

Former Pensions Minister Steve Webb reckons the Government will not dare to wreck people’s retirement plans by cutting the limit, let alone abolishing tax-free cash – and if it does defy warnings then transitional protections will be put in place.

So what sensible steps might you take before the Budget that are unlikely to backfire.

Pre-empting the Budget: Doing nothing is a respectable choice but there are some sensible steps which you are unlikely to regret

1. Work out if you’re on track for a good pension

We often receive research showing many people are confused by pensions and have no idea whether they have saved enough for a decent retirement.

It is best to start from a position of certainty, so systematically investigate all your pensions and include any assets like savings, investments and property you could draw on too.

Read more: The best self-invested personal pension providers 

When it comes to private and work pensions, you need to ask schemes the following questions.

– The current fund value.

– The current transfer value – because there might be a penalty to move.

– Whether the pension is in a final salary or defined contribution scheme. Defined contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement.

Unless you work in the public sector, they have now mostly replaced more generous gold-plated defined benefit – career average or final salary – pensions, which provide a guaranteed income after retirement until you die.

– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund.

– The pension projection at retirement age. You can use a pension calculator to see if you will have enough – This is Money’s calculator is here.

You should add the private pension forecast figures to what you anticipate getting in state pension, which is currently £230.25 a week or nearly £12,000 a year if you qualify for the full new rate. Get a state pension forecast here.

If you are tempted to merge your old pensions, read our guide first to ensure you won’t be penalised.

If you have lost track of old pots, the Government’s free pension tracing service is here.

Once you know what income you are on track to get in retirement, you can check it against one of the industry measures of what will be enough.

Pensions UK looks at what people typically require for a basic, moderate or comfortable retirement. Its figures do not include tax, housing costs or care bills.

Hargreaves Lansdown uses a different measure based on replacing a certain percentage of your salary.

2. Can you get more free cash out of your employer

The money you put into a work pension is topped up by your employer and the Government.

And while employers using defined contribution schemes are not as generous as they were to staff in traditional final salary schemes, they still give a significant boost to retirement savings.

Under auto enrolment, employers are required to put a minimum of 3 per cent of your earnings between £6,240 and £50,270 into your pension. Tax relief from the Government provides another 1 per cent.

You must put in at least 4 per cent on your own behalf, and if you opt out all the above is lost.

Extra top-ups are frequently available, particularly from large employers.

For example, an employer might automatically match 3 per cent of your earnings as its minimum contribution to your pension already.

But it might be willing to make 4 per cent, 5 per cent or 6 per cent in matching contributions if you opt to save a higher proportion of your income.

If you can afford to do this, you will also receive more pension tax relief from the Government than you would have done on…