When did you last think about retirement?

Every September, Pension Awareness Week arrives with a simple and clear objective: to remind us about the importance of planning for our financial future. It is an opportunity for pension providers, employers and professionals to collectively raise awareness, spread education, and encourage people to take ownership of their pensions.

For individuals approaching retirement, this week carries even greater relevance. What was once a distant, abstract concept is gradually becoming a more tangible milestone, measured in years rather than decades. The period leading up to retirement also tends to coincide with peak earning potential: Office for National Statistics data (2025) shows that UK full-time employees’ median pay reaches its apex in the 40-49 age band.

Consequently, it could be argued that this stage of life might represent the point of greatest financial capacity and the point of greatest urgency – making it the window in which any decisions made can have a major impact on the lifestyle one can aim for in retirement. This is precisely why, at Moneyfarm, we aim to keep regular contact with our clients, thereby ensuring that investments and overall objectives are monitored, reviewed and adjusted periodically, allowing your portfolio to evolve as you near retirement.

Unfortunately, pensions have long attracted a specific connotation underpinned by complexity and possibly confusion. Part of this might be attributed to sheer terminology – terms like “crystallisation” and “drawdown”, alongside acronyms such as PCLS, UFPLS, LSA and LSDBA – which could understandably leave people wondering where to even begin taking control of their pension provisions.

A survey by the Financial Conduct Authority (2024) found that around 75% of Defined Contribution pension holders over the age of 45 have no defined plan for how they’ll go about taking pension benefits. Pension Awareness Week aims to address and overcome this, helping savers and investors embrace this topic in an approachable and digestible way. This is a mission that we also share at Moneyfarm: through our broad range of products and the support offered by our team of Investment Consultants, we aim to turn jargon into simplicity and perplexity into clarity.

A historical overview: ‘then’ vs. ‘now’ 

To fully grasp the importance of retirement planning in this day and age, it helps to consider how UK pensions have evolved over time. 

For much of the 20th century, the gold standard model was the Defined Benefit (DB) scheme, often referred to as a “final salary” pension. Your employer generously promised a guaranteed income for life, while also carrying all of the risk that might arise from shortfalls caused by lackluster investment returns or members living longer than expected.

Fast forward to today, the DB model has largely disappeared from the UK private sector, replaced by the Defined Contribution (DC) scheme. Under DC arrangements, the amount you eventually have depends on the level of contributions made and how the underlying investments perform. This represents a significant paradigm shift – the risks have moved from the employer’s balance sheet onto the members’ shoulders – meaning the possibility of “running out of money” is now a scenario to be considered.

Another consequence of this transition is that income in retirement is no longer guaranteed, which has been further compounded by declining annuity rates over recent decades. Research by Edmund Cannon, Ian Tonks and Rob Yuille (2016) found that demand for annuities had fallen by nearly 75% from its 2012 peak following the pension freedoms reforms which have pushed many towards drawdown solutions instead, though this trend has reversed more recently primarily due to rising gilt yields.

The greater flexibility offered by drawdown solutions also brings a need for ongoing management throughout retirement however, to ensure the investments continue to support your future living costs, especially when accounting for the long-term effect of inflation.

The benefits of a DC pension

While DC pensions assign more responsibility on the individual, they also come with genuine advantages:

• Flexibility & control: in a DC pension you have the freedom to select an investment strategy that suits your risk profile and overall circumstances, moving away from a “one size fits all” approach towards a more bespoke solution.

This is important especially as life evolves and your financial priorities shift. A portfolio that was appropriate in your twenties may have been more exposed to an adventurous allocation, with the accumulation phase being generally characterised by higher risk tolerance as the pot has longer to recover from market corrections and generate compounded returns.

As you approach the decumulation phase, your overall allocation might shift towards a more cautious stance, as the risk of seeing big fluctuations in the pot you now rely on for your retirement income could carry meaningful implications.

• Tax efficiency for the self-employed: if you’re a company director running your business through a limited company, employer pension contributions may be considered as an allowable expense with benefits from a Corporation Tax standpoint.
  
  Not only does this entail one of the most tax-efficient ways to extract profits, but it also means that contributions are invested with the possibility for even greater advantages: long-term market exposure for growth potential, exemption from Capital Gains Tax throughout, and no Income Tax until you draw funds in retirement. 

If you are about to approach retirement, the number of working years left to make use of this may be fewer, thus causing the value of each remaining tax year to become more concentrated. 

• Tax advantages for the employed: if you’re employed, you can still benefit from DC schemes such as Self Invested Personal Pensions (SIPPs) through personal contributions. Basic-rate taxpayers receive an immediate 20% boost, while higher-rate (40%) and additional-rate (45%) taxpayers may claim back further relief via self-assessment.
  
  This may be even more advantageous when considering that, in retirement, individuals generally tend to earn less compared to their working years, meaning you may receive up to 45% tax-relief during the accumulation phase and only be subject to a lower Income Tax bracket once you’re drawing down the funds in retirement.

The path to a secure retirement 

While no assurance exists on precisely how much retirement will cost, it is far more certain that the risk of running short of money later in life increases significantly without a well-defined plan. This is exacerbated by a rising State Pension age which pushes the influx of a guaranteed income stream further down the line, hence making private pension provisions fundamental to bridging any deficit once your salary ceases to provide security.

However, as per the famous quote, “The best time to plant a tree was 20 years ago; the second best time is now”. Even if you’re approaching retirement soon, it is never too late to implement valuable starting points to increase your chances of securing a comfortable retirement:

• Review and act as soon as possible. As ‘time’ is widely deemed one of the most valuable assets in the world of investing and personal finance, inaction can become more costly with every year that passes. However, taking action can help bring both clarity as well as peace of mind. This might entail assessing your current financial arrangements through a “gap-analysis” – identifying the shortfall between where you are today (current state) and where you would like to be in retirement (target state), then devising strategies to close the gap (e.g. increasing pension contributions, reviewing your portfolio’s risk level, or amending your target retirement date).
  
• Consider whether consolidating multiple pensions could benefit you. Accumulating several pension pots across different providers is becoming increasingly widespread in a job market where changing employers several times during the course of one’s career is a common occurrence. With this, however, comes the potential for losing track of where all of your individual pots reside, and some may even end up sitting forgotten for years. Research from the Pensions Policy Institute (2024) estimates the value of lost or unclaimed pensions in the UK to exceed £31 billion.
  
  Bringing these pots together under a single Wealth Manager reduces administrative friction and can also lower overall management fees. At Moneyfarm, consolidation may also translate to reaching higher Wealth Tiers faster, unlocking enhanced benefits such as Guidance+ for an in-depth illustration of what your living standards in retirement might look like through cash-flow modelling and scenario forecasting.
  

Overall, Pension Awareness Week is a good moment to ask a simple question: is your current pension arrangement still the right one for where you are now, and where you’re heading?

If you would like personalised guidance to help you have clarity over this question and build a robust plan around your pension strategy, you can book a free appointment to talk through your financial situation. Our team of Investment Consultants would be glad to help.

Please remember that when investing, your capital is at risk. The value of your portfolio with Moneyfarm can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance. The views expressed here should not be taken as a recommendation, advice or forecast. If you are unsure investing is the right choice for you, please seek financial advice.