Planning for your retirement is something that can be so easy to put off and worry about later – after all, there’s plenty of time to deal with that, surely? Wrong!
The coronavirus pandemic has thrown a stark light on our financial needs and priorities, and it’s clear the UK is facing a growing challenge: quite simply, we’re not saving enough for the future. It’s therefore more important than ever to take greater responsibility for our financial futures – specifically, our pensions.
So, this Pension Awareness Day (15th September 2021), we’ve pulled together a round-up of key areas and resources to help you get to grips with your pension – whether you’re just getting started or well on your way.
The numbers don’t lie
Recent statistics paint a worrying picture of retirement prospects in the UK:
- 77% of savers don’t know how much they’ll need in retirement, while only 16% can give a figure.1
- The self-employed are among the groups least likely to have a pension they’re contributing to, with just 55% building a pension pot, compared with 80% of all adults in work.2
- While COVID-19 has affected everyone’s financial outlook, it’s been harder for women, with 62% saying their personal and financial goals have been impacted.3
What’s more, if we ever needed a clear illustration of the link between our money and our mental health, the pandemic has provided it. Indeed, money is a daily concern for 16% of adults in the UK, with nearly half the adult population saying they had worried about money once a week or more in the previous month.4
Not to mention the fact that, generally, we’re all living longer and in better health – meaning it’s crucial that you make sufficient preparations to safeguard your financial future in later life.
So, how can you make your pensions work smarter for you? Here are the key areas to consider…
Understanding the basics
Depending on how old you are, retirement may seem a long way off, and so perhaps you’re in no immediate rush to start thinking about pension planning. However, the power of compounding means that the sooner you start saving into your pension and the longer your money is invested, the more potential it has to grow – as the below infographic shows!
You can use your age as a guide and aim to hit certain benchmarks in your 20s, 30s, 40s and beyond. The earlier you start putting money away, the better, and knowing how much you should be saving at each stage of your life can serve as a good starting point.
And, even if you’re fast-approaching retirement, it’s never too late to get to grips with your finances. The first step is to identify your goals. The Pensions and Lifetime Savings Association has developed a set of Retirement Living Standards that aims to help people picture what kind of lifestyle they could have in the future, and outlines how much they’ll need per year to maintain that lifestyle.
It’s also important to understand the different types of pensions and the various tax allowances that apply to pensions. For example, did you know that you may be able to contribute more than the annual allowance – currently £40,000 – by carrying forward unused annual allowance from the previous three years?
And don’t forget to keep track of your pension savings. Tracking down a lost pension can be as simple as making sure any old pension providers have a current address for you. If you’ve recently moved house, you should write to the pension company, tell them your new address and ask for a statement. You can also get help from the government-backed Pension Tracing Service, either online or by calling 0800 731 0193.
Lastly, consider the implications of stopping pension contributions to save cash. There’s nothing wrong with building up a savings buffer, but don’t let it compromise your long-term financial health.
The self-employed – An uphill battle?
Retirement is an area in which the self-employed are in some ways disadvantaged. Most people open a pension with their employer, but the self-employed are excluded from automatic enrolment, which, since its launch in 2012, has seen millions of workers placed into workplace pension schemes to help them make payments and plan for retirement.
However, there are things you can do to plan a comfortable retirement if you’re self-employed. Pensions should ideally be just one part of a broader retirement savings package. Individual savings accounts (ISAs), personal pensions, self-invested personal pensions (SIPPs), property and business assets can all provide an income in retirement, as well as offering extra diversification and investment flexibility.
Women – Mind the (pensions) gap!
Half of the UK’s population face an unequal future in retirement. Women – over and above men – have particular issues to tackle in terms of saving enough for their pension pot. The ongoing challenge they face is that of the gender pay gap, which puts them at a clear and unfair disadvantage because they end up receiving a smaller income in their working years, which then translates into difficulties in saving enough for their retirement.
As is often the case, the way a woman’s life might play out means that they end up taking time out of work to raise a family or care for elderly relatives. These circumstances can mean many women face a significant gender pension gap (which experts believe has widened due to the pandemic5) – but there are plenty of things all women can do to increase their chances of a financially secure life.
Children – Planning a rosy future
Did you know that you can also start a pension for your child? Setting one up can bring meaningful tax advantages! If your child is a non-taxpayer, they will nevertheless receive basic-rate tax relief on contributions, meaning a maximum of £2,880 a year is automatically grossed up to account for tax at 20%, producing an annual investment of £3,600.
Already retired? Time to check in
If retirement is on the horizon, you may be reviewing your assets and contemplating what the future is going to look like. You may be questioning whether your retirement income will be sufficient, or wondering if there’s a better way to maximise your investments.
If you’re approaching retirement, and are financially able to leave your pension pot untouched for the foreseeable future, your savings have the opportunity to potentially grow.
And, when you reach the stage of life where you’re drawing your pension, you’ll be faced with a range of new challenges. Where regular health checks can help identify early signs of health issues, meaning you’re able to monitor them before they become too serious, the same can be said of your finances!
We’re with you all the way!
Retirement – and the way we save for it – has dramatically changed over the last few years, and that’s where planning makes perfect. Wherever you are in your savings journey, having a strategy is key. You want to make the right decisions for you, both now and in the future, so why not take control and create a game plan this Pension Awareness Day?
At Wellesley, we’re ready when you are. Contact us today to arrange a no-obligation chat.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Wellesley Wealth Advisory is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority). Wellesley Wealth Advisory is a trading name of Wellesley Investment Management Ltd.
1 Pensions and Lifetime Savings Association, 2019
2 Financial Lives 2020 survey: the impact of coronavirus, Financial Conduct Authority, 11 February 2021, 16,000+ survey respondents
3, 5 WealthiHer Network, ‘The Changing Faces of Women’s Wealth’, 2021, total number surveyed: 2,239
4 Money and Pensions Service; ‘Shame, upbringing and burdening others: why 29m UK adults don’t feel comfortable talking about money despite being worried about it’. November 2020. Sample size: 5,200 UK adults