Are you looking forward to a long and comfortable retirement?
Most people would like to – but some people may be in for a nasty surprise.
Many UK retirees are not only facing smaller pension pots than they may have expected, but they may find those pots are much smaller than they actually need.
A recent report by pension provider Standard Life suggests that retirees are averaging just £131,000 in their pension pots. Current annuity rates, having a pension pot of £131,000, might offer just £527 a month, or £6,332 in a year.
Even when you factor in a full state pension, a £131,000 nest egg still falls short of providing a “moderate standard of living”. The Pensions and Lifetime Savings Association (PLSA) says retirees need £43,100 a year to be able to fund that ‘moderate’ retirement as a couple.
At Continuum we are looking at ways to boost your pension pot.
1. Maximise your employer contributions
Any employers scheme is likely to be good value, because your employer will almost certainly be topping up your pension contributions. It’s like having a pay rise (although you can’t touch it until you retire)
For example, those aged 22 earning £25,000 per year might accumulate a pot of £542,000 by 66 if they pay the standard monthly auto-enrolment contribution of 3% and increased it by just 2% to 5%. Go even further and your pension pot may be worth over £1 million.
Some employers match your contributions up to a certain amount, so the more you pay in, the more they will. Check with your boss or HR manager.
2. Make your bonus work for you
If you are getting a bonus, it may be worth considering putting it into your pension instead. Not only does this allow you to make your money go a lot further by being invested in your pension you can also benefit from tax relief, paying less National Insurance and possibly even boosting your child benefit.
It means a little less cash now, for the fun things like holidays and a new car, but it could mean a lot more cash later on.
You can also use your pension as a safe (and rewarding) home for any spare cash you come into, and don’t know what to do with.
3. Salary sacrifice
You could also decide to divert more of your take-home pay into your pension. This may be difficult if money is tight, but if you can get the figures right, it can in some cases pay for itself.
If you are at or near a tax threshold, a salary sacrifice can cut your tax liability – which means paying less tax and less national insurance. Your employer can benefit too – they pay less NI, because they pay you a smaller salary. It’s advisable to fully understand the implications of opting for such arrangements as salary sacrifice can offer tax advantages however there are some potential drawbacks to consider such as lower take home pay or reduction in benefits from your employer.
It could be time for a chat with your employer. You would both rather the money goes to you rather than the taxman.
However, you decide to boost your pension, don’t delay – the sooner you start, the longer your money has to potentially grow along with the benefits of compound interest. It all adds up, giving your savings a boost that can add real value to your pension and make a meaningful impact on your retirement.
4. Use your pension allowance
Try to make the most of your pension annual allowance. This is £60,000 or 100% of your earnings in a tax year, whichever is lower.
This may differ if you’re a high earner and your annual taxable income (known as your “adjusted income”) exceeds £260,000 as you won’t be entitled to the full allowance.
Remember, your pension is a great investment, thanks to the tax concessions. It makes sense to make as much of it as you can.
5. Get some expert advice
Tax is always complicated, and pensions are too important to leave to chance. Getting independent expert advice is vital to avoid making costly mistakes – which could leave you with a tax bill – or not using the opportunities to the full.
At Continuum we can provide the expert advice you need.
Retirees £119,000 worse off than they’d hoped | Standard Life
https://www.retirementlivingstandards.org.uk
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken.
Pension savings are at risk of being eroded by inflation.
