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 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.
This Pension Awareness Week (11th–15th September), we’ve pulled together a round-up of key areas to help you get to grips with your pension, whether you’re just getting started or well on your way.
Preparing for the 100-year life
We’re living much longer than previous generations on average – one in five newborn females and one in seven males will live to be 100 or more in the UK.1 This means we’re likely to be spending much more of our later life in retirement.
It’s therefore crucial that you make sufficient preparations to safeguard your financial future in later life and reduce the risk of outliving your wealth. You can use your age as a guide and aim to hit certain benchmarks in your 20s, 30s, 40s and beyond.
Getting your retirement savings off the ground and starting your pension as early as possible means that you’ll have a better chance of achieving the retirement that you have in mind.
But don’t worry if you’re not sure where to begin. And it’s ok to start small if you need to and gradually build up your retirement savings over time. 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.
For example, if you save £200 a month into a pension from age 20, your fund could be worth £349,000 by the time you’re 67. If you don’t start till 40, its estimated worth would be £123,000.2
It’s also important to understand the different types of pensions and the various tax allowances that apply to pensions. Did you know that you may be able to contribute more than the annual allowance – currently £60,000 (or 100% of your salary, whichever is lower) – by carrying forward unused annual allowance from the previous three years?
Mind the pensions gap
Women have particular issues to tackle in terms of saving enough for their pension pot, including the gender pay gap and 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. The latest available data shows the gender pension gap is 16% at the beginning of women’s careers, reaching 55% at the point of retirement.3 Legal & General also found that the average pension pot of a woman at retirement (£12,000) is found to be less than half that of a man (£26,000) at the same retirement stage.4 But there are plenty of things all women can do to increase their chances of a financially secure life – this is where taking financial advice can be vital.
Planning a rosy future for the next generation
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.
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.
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.
Retirement on the horizon
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. For a comfortable standard of living (which includes three weeks in Europe each year and a generous budget of £144 for food each week), a single person needs £37,300 a year, while a couple needs £54,500.5
If you’re wondering whether to pay to top up your state pension, it could be an efficient way to put money towards your retirement, but it’s important to consider all the implications. Look out for an in-depth article about this later this week, as part of our Pension Awareness Week series.
When you reach the stage of life where you’re drawing your pension, you’ll be faced with a range of new challenges. Regular health checks can help identify early signs of health issues, meaning you’re able to monitor them before they become too serious, and the same can be said of your finances!
If you have children or grandchildren and hope to leave them something after you’re gone, it’s vital to factor them into your retirement planning, as pensions can be handed down to the next generation. Look out for an in-depth article about this later this week.
Time to check in?
Regular reviews can help you find out where you stand with your financial goals and make sure you stay on track. Check in on all your savings, investments and insurance policies, and talk through your future planning with your partner to ensure you’re both on the same page.
Your earnings will change over time as you move through your working life, and it’s important to try and make sure your contributions towards retirement keep pace. It’s also worth keeping up to date with where your pensions are held, as well as how much they’re worth and whether they’re working hard for you and continue to be fit for purpose. If you’re not sure whether you had a pension at a previous employer, the Department for Work and Pensions offers a free Pension Tracing Service. You can find this online at www.gov.uk/find-pension-contact-details.
When considering pension planning you can access free impartial pensions guidance from MoneyHelper’s https://www.moneyhelper.org.uk/en/pensions-and- retirement/pension-wise where you can book a free appointment, or call them on 0800 011 3797.
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. Look out for an in-depth article about this later this week.
We’re with you all the way!
Although regular check-ins are important, it’s not up to you to have all the answers. By sharing your aspirations with a trusted financial adviser, you can move closer towards the retirement you want. Making your money work harder for you in the context of your own personal and family aspirations may just be the key that opens the door to success.
So, wherever you are in your savings journey, why not take control and create a game plan this Pension Awareness Week?
At Wellesley, we’re ready when you are.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
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 Tax relief is dependent on individual circumstances.
1 Life Expectancy Calculator, Office for National Statistics, January 2022.
2 This calculation is based on contributions invested each month, increasing by 2.5% a year, with growth after charges of 2.4% a year. These figures are examples only and are not guaranteed. All monetary values shown have not been adjusted for future inflation. They are not minimum or maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this.
3 Legal & General Gender Pension Gap figures, 24 Jun 2022. The analysis is based on LGIM’s proprietary data on c.4.5 million defined contribution members as at 1 April 2022, but does not take into account any other pension provision the customers may have elsewhere.
4 Legal & General Gender Pension Gap figures, 24 Jun 2022. L&G analysed the size of the pension pots of more than 50,000 Britons who retired in 2021.
5 Rising Prices Add Almost 20% to the Cost of Retirement, Pensions and Lifetime Savings Association, January 2023. All figures are for the UK, excluding London.