Jasmine Birtles
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How to Read and Understand the Letters You Get From Your Pension Provider
Ruby Layram
11th Nov 2025
If you’ve got a workplace pension or a Self-Invested Personal Pension (SIPP), you’ll get at least one letter a year from your pension provider, often called an annual statement or pension update.
These letters are important, which is probably why most people do exactly the same thing with them:
Pop them in a drawer, or leave them on the “to-do” pile, never to be seen again until next year’s envelope lands.
Sound familiar?
Don’t worry, you’re far from alone. Pension statements can look dull, technical, and full of complicated words. But once you know what to look for, you can scan them in just a few minutes and pull out the key facts that really matter.
Here’s a simple guide to reading (and actually understanding) your pension letters, and how to use what’s in them to make smarter choices about your financial future.
1. Start with the basics, your contributions
Your statement will show how much money is going into your pension each month or year. Usually, this is a combination of:
- Your contributions: a slice of your salary, deducted automatically.
- Your employer’s contributions: at least 3% of qualifying earnings under auto-enrolment (many employers offer more).
- Tax relief: added by the government, boosting what you put in.
Quick tip: Check whether your employer offers matching contributions. For example, if they’ll match up to 6% but you’re only paying in 3%, you’re leaving free money on the table. Increasing your contribution could instantly grow your pension without costing as much as you think (thanks to tax relief and employer top-ups).
Also read: The New Pension Rules You Need to Know In 2025
2. Check the size of your pot
The headline number most people look for: your current pension value (how much your pot is worth today).
Your letter should show:
- Total contributions so far (from you + employer + tax relief)
- Investment growth (or losses)
- Current pot value
If your contributions are strong but your growth looks weak, it’s a sign to check how your money is invested.
Pension funds can go up and down with markets, but consistently poor performance might mean your fund isn’t the best fit.
3. Look at fund performance and charges
Your pension isn’t sitting in cash; it’s invested in one or more funds.
These are managed by professionals, and your statement will tell you:
- Which fund(s) you’re in (often the “default fund”).
- Performance, how it’s done over 1, 3, and 5 years.
- Charges, annual fees for management and admin, shown as a percentage.
Even small fees add up.
A 1% charge might not sound like much, but over 30 years it can cut tens of thousands of pounds from your pot.
Quick tip: If your fund consistently underperforms its benchmark, or if you’re paying higher charges than other funds in your scheme, it’s time to look at alternatives.
4. Review your projected retirement income
This section gives you an estimate of what your pot might be worth, and what income it could provide , at retirement. It’s based on:
- Your current contributions
- Assumed growth rates
- Your planned retirement age
It’s not a guarantee, but it’s a useful reality check.
Ask yourself:
- Does this income look enough for the lifestyle you want?
- If not, can you increase contributions, change funds, or adjust your retirement age?
- Even small changes now can make a huge difference later.
5. Default funds: safe, but not always best
Most people’s pensions are in the default fund, the “do nothing” option your provider puts you in automatically.
Default funds are designed to balance risk and growth, gradually shifting towards lower-risk investments as you approach retirement.
For many people, that’s fine. But these funds aren’t tailored to you. They can be too cautious if you’re younger, or not cautious enough if you’re nearly retired.
Quick tip: If you’re decades from retirement, you could afford to take more investment risk (and potentially get better long-term growth).
If you’re close to retirement, you may want to reduce risk — or seek advice on how best to preserve your pot.
6. Explore alternative funds
You don’t have to stick with the default. Most pension schemes let you choose from a range of other funds, including:
- Equity funds (global, UK, or emerging markets), higher risk, higher growth potential
- Ethical or ESG funds which are focused on sustainability and social impact
- Sector funds such as tech, healthcare, etc.
- Lower-risk options like bonds or cash-based funds
You can usually find fund factsheets, performance charts, and risk ratings in your provider’s online portal or by requesting printed information.
Quick tip: When comparing funds, don’t just look at last year’s performance. Look at 5–10 years of results, and consider the risk level and charges too.
7. Weigh up risk and reward
Choosing the right mix of funds is about balancing your time horizon and risk appetite:
- In your 20s–40s: You can ride out market ups and downs, so more growth-focused funds might make sense.
- In your 50s–60s: You may want to protect your pot from sudden dips, even if it means slightly lower returns.
You can also split your contributions between funds. For example, 70% in a growth fund and 30% in a lower-risk one.
8. Watch those fees (and the small print)
Your pension statement should include a line for annual management charges or total expense ratio.
Compare these between funds, even a 0.5% difference can be massive over time.
Also check whether your plan uses “lifestyling” which means automatically moving your money into lower-risk investments as you age.
This can be useful, but it’s not always ideal for everyone. If you plan to keep your money invested after retirement (e.g. drawdown), you might want a different approach.
Quick tip: If you’re within 10 years of retirement, it’s worth paying for an hour with a financial adviser to review your pension options. That advice could save (or earn) you far more than it costs.
Where To Get Help If You Need It
You don’t have to figure everything out alone. Here are a few places to turn for guidance:
- MoneyMagpie’s pensions section: easy-to-read guides and updates.
- Pension Wise: a free, government-backed service for people over 50, offering one free session with a pensions expert.
- Independent Financial Advisers (IFAs) for tailored investment advice if you want hands-on help.
A Few Minutes Could Make a Big Difference
Your pension letters might look boring, but they’re one of the most powerful financial tools you get each year.
Spending just ten minutes checking your contributions, charges, and fund performance can reveal whether your pension is quietly working for you, or quietly falling behind.
Over a lifetime, those tweaks could be worth tens of thousands of pounds.
So next time that brown envelope arrives, don’t shove it in a drawer.
Make a cup of tea, grab a highlighter, and give it a quick scan.
Your future self, maybe sipping something stronger on a sunny beach, will thank you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
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