The pension statement most people file away unread

The State Pension arrives with a letter from DWP. A workplace or personal pension arrives with a statement from the scheme or provider. The first gets read because it concerns money already being paid. The second often does not, because it concerns money that is not being paid yet.

That is understandable and it is a mistake. The annual statement is the only routine point at which a private pension reports on itself, and several things in it are either worth acting on or easy to misunderstand.

First, work out which kind of pension it is

Almost everything about reading a statement depends on this, and the two types behave completely differently.

Many people have both, from different periods of work. Someone who was contracted out of the Additional State Pension before 2016 has a scheme somewhere that those years were paying into — frequently a defined benefit one.

Term explained: defined benefit

A pension where the scheme promises an income calculated from a formula — typically years of service and a measure of salary — rather than from the performance of a pot of money. Often called a final salary or career average scheme.

The projection is an illustration, not a promise

On a defined contribution statement the largest and most memorable number is usually a projected figure at retirement. It is also the most misread item on the page.

That projection is produced by applying a set of assumptions to the current pot: assumed investment growth, assumed charges, an assumed retirement age, an assumed level of future contributions, and an adjustment to express the result in today’s money. Change any assumption and the number changes. It is a modelled illustration prepared on a standard basis so that statements are comparable — not an amount anyone has undertaken to pay.

The honest way to read it is as a direction of travel. If the projection is far from what retirement is expected to cost, that is information. If it is close, that is also information. What it is not is a figure to plan to the pound.

What to look at, in order

The nomination form is the one to act on

If only one item on the statement gets attention, it should be this. A nomination — sometimes called an expression of wish — records who the member would like to receive benefits if they die. Scheme trustees are generally not bound by it, but they do take it into account, and in its absence they are working without the member’s stated view.

These forms date badly. They are typically completed once, when a job starts, and then survive marriages, divorces, births and deaths without being revisited. Updating one costs nothing and takes minutes, and it is the single most consequential administrative act available to most pension members.

Charges deserve one careful look

A charge expressed as a fraction of a percentage per year looks negligible on a single statement. Over twenty or thirty years, applied to a growing pot, it is not.

The point is not that lower is automatically better — some schemes charge more and do more — but that the figure should be known rather than unknown. If a statement does not make the total cost clear, the scheme can be asked. That is a reasonable question and schemes are used to answering it.

If a statement has stopped arriving

Pensions get lost mainly through address changes and through employers being renamed, merged or wound up. The government runs a free service for this: Find pension contact details, also reachable as the Pension Tracing Service.

It is worth knowing exactly what it does and does not do. GOV.UK states that the service will not tell you whether you have a pension, or what its value is — it provides contact details for a scheme or provider, and you need the name of an employer or provider to use it. The actual enquiry is then yours to make.

That limitation is worth stating because paid services sometimes present themselves as able to find pensions. The free government service provides the contact details; after that it is a letter or a phone call, and nobody needs to be paid a share of a pension to make one.

When to contact the scheme

• Contributions on the statement do not match your payslips. This is worth raising promptly rather than at the next statement.
• Your details are wrong. Fix it before it becomes the reason a statement stops arriving.
• You cannot tell which type of pension it is. The scheme will say, and the answer changes how everything else is read.
• The assumed retirement age is not yours. Many schemes will re-run the illustration on a different age.
• A transfer is being considered. Defined benefit transfers in particular have their own regulatory requirements, and this is the point to get proper help rather than a general article.

That last point is where the distinction between free guidance and paid regulated advice becomes practical, and it is covered in where retirement help is free, and where it costs.

How this fits with the State Pension

The two sit side by side and neither tells you about the other. A workplace statement says nothing about a State Pension entitlement; a DWP letter says nothing about a private pot. Each has its own paperwork, its own figures and its own contact point.

Added together they are what a household will have to live on, which is why the exercise is worth doing once a year with both documents on the table rather than one at a time. The State Pension side of that picture starts with the award letter and the forecast, as set out in the National Insurance years that decide your State Pension.