It’s all too easy to lock your savings away and forget about them for a few years. But according to a recent report from Aviva, Legal & General, Mercer and the Pensions Advisory Service – we should all be reviewing our savings plans on a regular basis.
In a report titled ‘Developing the mid-life MOT’, pension and savings experts have cautioned that as life expectancy increases, UK workers need to prepare for a longer retirement. However, multiple government and private sector reports have warned that millions of Britons face a savings deficit.
Enter, the ‘mid-life MOT’.
First mooted by John Cridland, the former head of the Confederation for British Industry (CBI) in March 2017, the idea behind the mid-life MOT was to encourage individuals and employers to take some time to review their career progression and financial situation before any potential problems arise.
The report has already spurred change in the pensions industry. Aviva has pledged to start offering its own mid-life MOT to customers from 2019 onwards, while Legal & General has started trialling the MOT programme with its own employees.
However, there is no need to wait around for your pension provider to offer you a check-up. Whether you are in your 40s, 50s or 60s, it is quick and easy to conduct your own savings MOT.
You might even find that you can save a lot of money along the way…
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So how do you give your savings a mid-life MOT?
1. Understand your goals
Saving is pointless unless you have a specific goal in mind. For most people in their 40s, 50s and 60s, that goal is to build up a decent pension pot, which will supplement the state pension and allow them to achieve the retirement of their dreams.
Set realistic goals for your retirement by working out how much you can afford to save from your monthly paycheck. Commit to a minimum monthly investment in your savings and set up a direct debit for payday.
Any time your income changes, take a few minutes to review your monthly savings contributions.
2. Ask tough questions
If your savings are not growing as quickly as you would like, you need to ask yourself why.
Are you simply having bad luck with your investments? Are you losing value by keeping cash in a low-rate account? Or are you just not saving enough?
Your mid-life MOT represents an opportunity to honestly assess your financial situation and course-correct where needed.
3. Be aware of your options
If you are disappointed in the performance of your savings, it may be time to change your savings plan. Compare your existing interest rate with the best savings rates on the market and consider moving your money from one account to another.
It is also important to ensure that you are making full use of the tax-free benefits that are available to pension savers. Taxpayers can shield up to £20,000 per year in an ISA, as well as £40,000 in a SIPP.
Finally, make sure that you are taking full advantage of the auto-enrolment scheme where your employer will match your pension fund contributions. By using this scheme, you can essentially double your pension savings on a monthly basis.
4. Don’t leave it too late
“As more of us live longer, we need to act earlier in life to enable us to stay healthier, work for longer, and save more if we are to enjoy our later lives,” says Patrick Thomson, senior programme manager, at the Centre for Ageing Better.
“People in mid-life could benefit from better access to information and advice to plan and prepare for their later lives.”
The earlier you plan, the less you have to save to meet your own savings goals. While the mid-life MOT specifically targets people in their 40s, 50s and 60s, it is never too early to start reviewing your finances.
5. Rinse and repeat
The mid-life MOT is not a one-off event.
As you grow older, your financial situation will change, as will your savings goals. Ideally, your savings MOT will be an annual event, but if that isn’t feasible, try to make sure that you review your savings during any major life change. This might include a new job, a marriage or a change in your health.
“To have a real, positive impact on society, this needs to be an everyday feature for people in their 40s and 50s,” said Chris Knight, chief executive of Legal & General Retail Retirement. “[This] report sets out how we can start that journey and take a significant step in helping more people enjoy a happy, healthy retirement.”