You may dream of enjoying a long and carefree retirement, perhaps one that involves going on long holidays or devoting lots of time to a much-loved hobby. But unless you’ve got some properly thought-out plans in place for later life, you could end up coming very unstuck.
We’re not doing enough now
New research by SmartSave, a Chetwood Financial Company, has found that 44% of Brits think they will retire by – or before – the current retirement age of 66. Yet of those, only 54% have a clear financial plan in place. There is, it seems, a knowledge gap between savers’ expectations for retirement – and their realistic prospects.
Andy Mielczarek, founder of SmartSave, said: “While many people hope to start enjoying retirement at the earliest opportunity, it is clear those expectations might be a little unrealistic for those who don’t plan ahead. Nobody can afford to sleepwalk through preparing for later life.”
What about the State pension?
You may be one of the many people telling themselves that the State pension will help carry them through. Admittedly, with inflation-busting increases of 8.5% from next month (April 2024), retirees will receive a big boost – with those in receipt of the new state pension set to get £221.20 a week (up from £203.85 a week). This adds up to £11,502 a year. Meanwhile, those on the old basic state pension (paid to those who reached state pension age before April 2016,) will see their weekly amount go up to £169.50 a week (up from £156.20). This totals £8,814 a year.
But no matter which way you look at those figures, you simply aren’t going to be able to rely on the State pension to provide an adequate income in retirement. You are going to need to have your own pension savings, too. This means coming up with a plan as to how you’re going to provide yourself with the rest of the retirement income you’ll require. (And don’t forget, with the State pension age set to increase to 67 by 2028 – and then to 68 between 2044 and 2046 – it could take even longer to get any money at all unless you’ve made your own provision).
Make the most of your work pension…
If you are part of a workplace scheme, then it pays to make the most of it. Most schemes are low cost, have decent fund choice options available, and allow you to benefit from employer contributions in addition to the money you pay in. Together with the tax relief from the Government, this gives you a big bonus on the money you save for retirement – making this a bit of a no-brainer.
.. or boost contributions into a private pension
Equally, if you’re self-employed and don’t have access to a workplace scheme, you need to look at boosting the money you pay into a private pension instead. A stakeholder is a simple kind of investment plan. Or, if you’re comfortable with the idea of taking a more ‘hands-on’ approach, a self-invested personal pension (SIPP) can be a great way to get more control and visibility. Whatever you decide, the key is to ensure you’re paying a sensible amount into some type of personal pension to build a pot for a time when you’re no longer working. You get tax relief on pension contributions, so it will make less of a dent to your income than you expect.
How much should I save?
When it comes to the amount you should be tucking away each month, there is no right answer. Your contribution will depend on things such as your retirement savings goals, when you plan to access your pension, your age when you start saving, and your investment returns. There are a number of different rules of thumb you can follow. One of these involves you dividing your age in two and putting in that number as a percentage of salary. So say, for example, that you were aged 50, you would aim to pay in 25% of your earnings.
If you want to look at it another way, give some thought to the research by the Pensions and Lifetime Savings Association which estimates a single person who owns their own home will require an income of more than £43,100 for what it dubs a ‘comfortable’ retirement. Even someone hoping for a moderate retirement will still need a hefty £31,300. With these figures in your head, you need to take a long hard look in the mirror and ask yourself honestly if the future you want is the future you are able to get?
Don’t be deluded
The truth may be hard to hear, but unless you take steps now, you could end up with a lot less slotted away than you expect by the time you come to stop working. This, in turn, will mean you end up faced with the stark choice of either having to settle for a significantly less comfortable retirement – or having to work for longer.
Admittedly, some individuals will make an active choice to go on working in their late 60s and 70s, but others will have no choice but to do so. So, even though you might feel as though you have little cash to spare right now, what you need to remember is that even small amounts saved regularly can grow substantially over time.
What action can you take?
The good news is, when it comes to slotting away funds for later life, it’s never too late to start. If, though, you’re the sort of person who has a tendency to ‘put things off until tomorrow,’ what you need to do is make a pledge, right now, to get serious about pension saving.
- Begin by getting your forecasts – this will allow you to find out how much State pension you might get, and when you might get it. To do this, you will need to check your State pension forecast. While you’re at it, dig out annual statements you’ve received from any workplace and personal pensions you have, too. These will have been sent by your provider.
- Do the sums – make use of online calculators which can help you work out if your current pension contributions will be sufficient to fund your desired retirement lifestyle.
- Check on your pension pots – make sure you know when your money is tucked away. Track down any lost or missing pots. The Government-backed Pension Tracing Service is a good place to start.
- Fill in the gaps – if you have gaps in your National Insurance record you now have until April 2025 to plug those holes. What you need to realise is that in order to be eligible for the full ‘new’ state pension you need to have 35 qualifying years of NI contributions – and at least 10 years to get any at all. It is often women who can find themselves with an incomplete record, perhaps having taken time out to bring up children or care for elderly relatives. By ‘topping up’ your record, you can improve your retirement income. To find out many years of NI payments you’ve made – and to check for any missing years – visit Gov.uk.
- Seek help – if you’re confused about pensions, or struggling to make decisions yourself, enlist the help of a financial adviser. If this is beyond your means, a cheaper and more ‘low-key’ option may be a financial coach; think of it as a kind of ‘personal trainer’ for your cash.
Make your dreams for later life more than just dreams
By having a robust long-term strategy – and by getting into good habits now – you will start to move closer towards making your retirement dreams that little bit more of a reality.
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