When you are looking at your pension arrangements, one of the key questions is how much you will actually need?
At Continuum we are looking at the answer to that question – and what you can do if your pot is not as large as you want for your retirement plans.
How much do you need to retire comfortably?
According to the Pensions and Lifetime Savings Association, as a single pensioner you will need an income of £10,200 to live a “minimum level” lifestyle in retirement. This is slightly more than the current full new State Pension of just over £9,339 a year, suggesting that additional provision will be essential.
In fact, research by Which? estimated that a single pensioner needs around £19,000 a year to live ‘comfortably’. This would need a total pension pot of £154,700 whilst drawing down assuming it keeps growing at a rate of 3% annually.
If you’re one half of a couple or don’t own your own home, you will need to aim for a higher income and pension pot.
There could be another reason to aim higher. If you retire at the current state retirement age of 66 you have a reasonable chance of living another 25 or even 30 years. Inflation could eat into the value of your pension. Living into your 90s might be a great deal less comfortable if you are having to do so on a pension that is no longer adequate for the essentials, let alone the comforts.
What is the average UK pension pot?
The disturbing fact is that the average UK pension pot stands at just £61,897. With current annuity rates, this would buy you an average retirement income of only around £3,000 extra per year from age 67.
But what about the state pension?
For the 2022-2023 tax year the new State Pension is a £185.15, up from £179.60 a week, but only those who meet two criteria are eligible for the full sum. You must have made 35 “qualifying years” of National Insurance contributions. You accrue one qualifying year for every year you are in work and you need a minimum of 10 qualifying years to receive the State Pension at all. After that, what you receive is calculated on the number of qualifying years you have between 10 and 35.
The average pension pot and full State Pension together mean an income of just over £12,000 a year, barely enough for a basic retirement lifestyle.
The chances are that you need a bigger pension pot.
How to build the pension pot you want
You probably can’t rely on your workplace pension scheme to provide the level of cash you need, but it makes sense to make the most of it.
Does your scheme allow you to increase your contributions? If you can arrange a ‘salary sacrifice’ and pay more into your pension fund, you could reduce your tax bill.
Do you have any pensions you have forgotten about? According to figures from the Department for Work and Pensions, an average person will have 11 jobs in their lifetime, often signing up to their employer’s workplace pension each time they start a new role – and forgetting about their money when they start their next job. Research carried out by the Association of British Insurers found that as much as £20 billion could currently be sitting unclaimed in as many as 1.6 million pension pots because people have lost track of their savings.
But even if you do make the most of your workplace scheme and track down forgotten pensions, you could still find yourself with a pension pot that is smaller than you want.
The good news is that you can set up a private pension plan to run alongside your existing arrangements and with the help of the Continuum team, it could provide the funds you need.
Simply contact us and we will put together a personalised plan for your future based on your circumstances. We will provide you with a dedicated pension adviser to help at every stage, starting with a close look at your existing arrangements and a clear forecast of the kind of pension you can currently expect.
Then we will look at different strategies which can boost your retirement wealth.
There’s one thing to remember. When it comes to pension saving, time really is money. The sooner you start planning for a more profitable future and building the pension pot you need, the less it will actually cost to do so.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.