Business Matters – Issue 37

Securing tomorrow, today

Retirement has changed considerably in the last few years. For many of today’s workforce, there won’t be a ‘cliff edge’ at which we move directly from work to retirement. We’re also living longer, meaning there’s a greater need to have sufficient savings to fund a longer retirement.

Many people fund their retirement from a range of sources, including property, Cash ISA savings,* Stocks & Shares ISAs, earnings, state pension and private pension pots, but in this issue of Business Matters, we’re focusing on all things pensions.

Worryingly, two-thirds of individuals in the UK aren’t saving enough to achieve an adequate retirement income.¹

And how much is that, exactly? Research has shown that 77% of savers don’t know how much they’ll need in retirement.²

The value of an investment with St. James’s Place will be directly linked to the performanceof the funds selected and may fall as well as rise. You may get back less than the amountinvested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. Thevalue of any tax relief generally depends on individual circumstances.

Cash ISAs are not available through St. James’s Place

Balancing the books

So, how do you feel about retirement? Are you looking forward to it because you know you’ve got it under control? Or are you uneasy about it because you’re not sure you’ve done enough? Maybe you’ve got ambitions to retire early. Can you afford to do it?

Whether you’ve got 20 years before you retire or just a few, it’s important to have an idea of just how much money you’ll need for a comfortable lifestyle once you stop earning a regular salary.

Helpfully, the Pension and Lifetime Savings Association predicts approximately how much individuals and couples will need in their pension pot to have a comfortable, moderate or minimum standard of living in retirement.

It’s important to note that these figures have risen over the past year. According to the PLSA’s latest data from February 2024, a single person now requires £14,400 annually to meet the minimum living standard, an increase of £1,600. For a moderate lifestyle, they would need £31,300 per year, and for a comfortable lifestyle, £43,100. For couples, the cost of these three lifestyles is £22,400, £43,100 and £59,000 per year. ³

The minimum living standard covers basic needs, such as holidaying within the UK, dining out once a month and spending around £600 annually on clothing and footwear, though being able to run a car is unlikely.

A moderate lifestyle offers greater financial security and flexibility, allowing for a two-week holiday in Europe, dining out a few times a month and affording a small car.

At the comfortable level, you can enjoy luxuries like regular beauty treatments, theatre visits and at least two weeks in Europe annually.

By providing approximate figures for various lifestyle choices, the PLSA aims to help people establish personal savings goals tailored to their individual circumstances and expectations. Having a clear goal based on activities you enjoy, such as holidaying or dining out with friends, can be a big motivator to continue saving.

Your pension income reality check

Many people may be shocked to learn how little income their savings will provide. One in five (19%) people admit they’ve never reviewed what they’re putting into their pension or checked if they’re making the most of their tax-free allowances (18%).⁴

This is why it’s essential to realise the power of ‘saving sooner rather than later’, and not simply hoping for the best.

Assuming you qualify for the full annual State Pension of £11,502 (2024/25), and you want to turn your pension into an annuity, the PLSA says you’ll still need to build up a pension pot worth more than £590,000 to achieve a comfortable retirement.⁵

It sounds like a big number. Yet with the right habits and the right plans, you have the potential to get there.

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. The value of any tax relief depends on individual circumstances.

Time to check in?

Whatever stage you’re at on your saving journey, having a specific income in mind can help you focus on the end goal – and look forward to it!

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.

Directors and executives: What’s your game plan?

For high-earning corporate directors, making sure you’re making the most of all available allowances on your pension could mean saving a considerable sum towards your future.

Maximising your pension contributions can bring considerable tax relief if you’re a top-rate taxpayer. But as you accrue a sizeable pension pot, it’s important to think about how to make the most of the various reliefs and allowances available to you.

The removal of several pension restrictions in the 2023 Spring Budget will, in general, have increased your options. Because of this, seeking expert financial advice to help you make the best decisions for your circumstances is more important than ever.

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. The value of any tax relief generally depends on individual circumstances.

Any tax relief over the basic rate is claimed via your annual tax return.

Leading from the front

And what about your employees? How do they feel about saving for the future?

With a combination of the full State Pension and auto-enrolment in a workplace pension, most people should be able to look forward to the PLSA’s minimum level of retirement. A modest contribution level is unlikely to be enough to get you over the line between the PLSA’s minimum and moderate lifestyle standards; that’s why starting to make proactive financial plans could – literally – pay dividends.

Employers legally have to provide and contribute to a pension for eligible staff under auto-enrolment rules. This shouldn’t be a box-ticking exercise. Plus, maximising the benefits scheme could make your business more attractive to new talent.

Auto-enrolment products are not regulated by the Financial Conduct Authority.

With 69% of SMEs saying recruiting and developing skilled staff is their biggest barrier to growth,⁶ companies could look to optimise their pension schemes – by reviewing features and communicating benefits – to help attract and retain talent. However, a 2023 study shows SMEs often fail to review their pension scheme⁷ or ensure it’s the best fit for staff. And 90% of workers say their employer hasn’t encouraged them to enhance their pension contributions. This leaves tax-efficient savings unused and deprives employees of the full benefit of their schemes.

Reviewing workplace pensions with the help of an expert will help ensure you and your staff are getting the best retirement provision possible.

Employee financial health checks

It’s also important to signpost your employees to helpful resources. One way of doing this is partnering with a financial organisation. At Wellesley, we offer a financial health check service, where we provide your employees with one-to-one personal finance advice, helping to give them confidence and support them to feel in control of their money.

“It’s clear that some people have never had these frank conversations before, and they really value having someone objective to talk to who’s not emotionally involved. I’m there to be a sounding board, if you like. A lot of employees have praised their employers for offering this service, as it shows they care about their financial – and overall – well-being. We’ve also had really positive feedback from the business owners. It really does benefit everyone.”– Ian Howard, Wellesley

“Money is a very emotive subject, which is perhaps why so many of us shy away from talking about it. Or, at least, talking about it properly. That’s why we need to talk more about money in a constructive way. These health checks give the reassurance of having someone in your corner – talking you through the financial implications of what you’re doing and empowering you to make more complex financial decisions.” – Samantha Kaye, Wellesley

If you’re interested in organising quarterly financial health checks for your employees with a Wellesley adviser, contact us today!

Dream big, plan smart

With so many years ahead of you, it’s important to work out how you will fund them. Having a clear plan will help provide you with the financial independence to enjoy your golden years to the fullest.

Making a plan takes time. Don’t expect to have that instant lightbulb moment, but pondering the potential scenarios will help you create tangible goals to work towards. It’s important to make an informed choice about how and where your retirement savings are invested.

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.

We all deserve a comfortable retirement. And planning your longer-term finances now will make you feel confident and in control of some of the best years of your life.

At Wellesley, we’re ready when you are.

*Cash ISAs are not available through St. James’s Place

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. The value of any tax relief generally depends on individual circumstances.

Sources:

¹ The People’s Pension – August 2022.

² Pensions and Lifetime Savings Association (Based on research involving 249 participants) February 2023.

^3,5 Retirement Living Standards, Pensions and Lifetime Savings Association, 2024. All figures quoted were developed by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA.

⁴ Research conducted for St. James’s Place by Opinium, among 6,000 UK adults between 16^th and 25^th October 2023. Research from last year was conducted by Opinium, among 4,000 UK adults between 17^th and 21^st October 2022. All results are weighted to nationally representative criteria.

⁶ Social Market Foundation, ‘Full scale’, September 2023 (Findings based on analysis of the Department for Business & Trade ‘Longitudinal small business survey’, August 2023, survey sample size 7,718).

⁷ Howden, ‘SME workplace pensions and benefits research report’, September 2023 (Based on a survey sample size of 500 SME employers and 500 SME employees).