Thanks to the introduction of auto enrolment in 2012 more people in the UK are saving into a pension scheme than ever before. But, did you know that up to 35% of UK adults still don’t have a pension? Pensions can seem complicated, but there are some simple things you can do to plan for the retirement you’d like.
Why Save for a Pension?
Although many of us could be eligible for a state pension, this will only cover basic needs. To have the standard of living you desire in retirement it’s a good idea to start saving into a pension scheme. Plus, pension schemes will also come with some tax relief, so you’ll put more away for a rainy day than if you depend on savings alone.
Start Saving Early
Even if you’re in your 50s you can still develop a good pension pot, but it’s going to be larger if you start at 30 or 40 (or before!).
If you have a pension income of £25-30k you are likely to live 1.5 years longer than someone with £10-15k.
Do your Maths
Have a think about how much money you will need to have when you retire. What expenses will you need to cover every week? Are there any hobbies you’d like to pursue or carry on with?
It’s also a good idea to try to pay off your debts before you enter retirement.
Then, work out how much of these costs will be covered by your State Pension. But be wary that this has changed in recent years.
Have a look at how much you pay into your pension each month, plus any accounts you may have from previous jobs. Likewise include any savings accounts, ISAs or investments that will contribute towards your income. You can work out your potential retirement income on the Money Advice Service’s Pension Calculator and see if you’re on track to achieve your goal.
Put more Away
If you’re in an auto-enrolment pension scheme that’s an excellent start. Current employee contributions are set at 3% minimum which will rise to 5% next year and should give a good basic level of income. Depending on your age and how much you earn you may want to contribute more than this to boost your earnings in retirement. If you get a pay rise or a bonus, consider contributing some to your pension pot. You will get tax relief on your contribution and – on some workplace schemes – your employer may increase their contribution too.
Treasure your Final Salary Pensions
If you are lucky enough to have a final salary pension or defined benefits scheme – one that pays out a fixed amount each month depending on how long you worked for an organisation – then it’s normally a good idea to keep them. They will provide you a guaranteed income and do not come with the financial risk of other schemes.
Avoid the Temptation to dip in Early
Your pension could be a salvation in later life, so try to avoid drawing out of it early, even if you’re still young. What you withdraw could take years to build up again.
If you’re Self-Employed
Although the number of self-employed people in the UK is growing, fewer and fewer are saving into pensions. Some plan to sell their business to fund retirement, but if this doesn’t work out as planned they can be left without financial security in later life. Others may put it off because of the cost. However, there are schemes out there to help self-employed people save:
- if you are a self-employed person or single person director, you can use the National Employment Savings Trust (Nest). This is a low-cost government pension plan set up to help employers who don’t have a workplace scheme
- If you are saving for a pension, you can reclaim some tax relief via your self-assessment tax return. If you’ve forgotten to do this, you can still claim tax relief from the past three years
Speak to your pension adviser for more information.