If you are approaching retirement you may be trying to answer a pressing question – what kind of income will you have? But although it sounds like a simple question, the answer can be complicated.
Having the kind of income we need in retirement is easier if we know how our pension pots are growing, and can ensure they are on target.
We look at how you can check on your pension pot performance.
Make the most of your State Pension
The State Pension has been thoroughly overhauled in preparation for the hike in state pension age – which will start to increase for both men and women to reach 66 by 2020.
To receive the full £159.55 per week you need 35 years of National Insurance Contributions. This means not everyone will get the full amount, especially if they took a career break to have a family.
You can get a record of your NI contributions from HM Revenue & Customs here. If you don’t have the full 35 years contributions, it is possible to make cash payment to increase them.
Remember, the State Pension is an important building block for retirement plans – but is not enough for most of us to live on comfortably. That is why most people have workplace pensions – and perhaps a personal pension as well.
Workplace and personal pensions
Workplace and personal pensions are really saving schemes that let you build up a pension pot. The more you save, the more income you could expect to get from it.
Workplace pensions are a good deal for most people, because your employer will pay in to your pension pot as well as you. Auto-enrolment means most working people now contribute to a workplace pension. With older defined benefit or final salary pensions your retirement income was based on your length of service, and your final salary. Due to the cost, most employers have closed defined benefit plans, and replaced them with defined contribution or ‘money purchase’ schemes with no guarantees over the income your savings will produce.
Personal pensions are those you arrange yourself. They’re also defined contribution pensions. The money you pay is invested by the pension provider. The money you’ll get from a personal pension usually depends on how much has been paid in, and how the fund’s investments have performed.
You can also choose Self-Invested Personal Pensions (SIPPs) which let you control the investments or stakeholder pensions which allow you a degree of control over how your savings are invested.
Whatever type or types of pension plan you have you can check how much you have in it, and how it is growing, by contacting your provider who will provide you with an illustration.
How much can you save into a pension?
The lifetime allowance was first set at £1.5million in 2006, however since April 2016 the lifetime limit on pension savings has been set at £1million. If you’re a UK taxpayer, in the tax year 2017-18 the standard rule is that you’ll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower.
The value of your savings is reviewed by HMRC when your pension is accessed, on death or when you turn 75.
Is it time for a pension review?
Knowing how much is in your pension pot is currently is essential to see if your pensions plans are on track for the future.
Talking to an expert could help you see if your savings can provide the kind of retirement income you want. It may help you decide whether you need to save more, or if there are ways to make your savings money in your pension grow harder. It could also help you look at any other investments, such as Buy to Let property or ISAs which would form part of your retirement income.
A pension review could help you see the actual figures – and look at the best ways to arrange the income you want.
To arrange your pension review, simply call us at Continuum.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Levels, bases of and reliefs from taxation may be subject to change and vary depending on individual circumstances. Tax is not regulated by the Financial Conduct Authority.