More people throughout the UK are saving into a pension scheme than ever before, all thanks to the government’s of auto-enrolment back in 2012. However, did you know that 35% of adults in the UK still don’t possess a pension? Pensions can seem daunting, but there are a few simple things you can do to plan for the retirement you want.
Why You Should Save For A Pension
Although most of us will be eligible for a state pension, this will realistically only cover our basic needs and offers no chance of luxury. To have the standard of living you desire in your retirement, it is a very good idea to start saving into a pension scheme as early as possible. Also, pension schemes come with some tax relief, so you’ll be able to put more away for a rainy day than if you rely solely on savings.
Save, The Earlier The Better
Even if you are in your 50s, you can still build a relatively good pension pot. However, it’s going to be much bigger if you start saving at 30 or 40.
Research shows that if you have an annual pension income of £25-30k, you are likely to live nearly 2 years longer than if you have with £10-15k. This link that largely reflects the connection between life expectancy and wealth, has been discovered through data held by Equiniti, the UK’s biggest pension scheme administrator.
Do Your Sums
Have a think about just how much money you will need to have when you do retire. What expenses do you think you will need to cover each week? Are there any hobbies or interests that you’d like to take up or continue with?
It’s also a great idea to try and clear your debts before you enter retirement, as this will effectively mean you lose part of your income if you don’t.
Now, calculate how much of these expenses can be covered by your State Pension. But beware that this has significantly changed in recent years. You can find further information on MoneySavingExpert’s State Pension pages.
Have a look at how much you put into your pension each month, plus any other pots you may have from past employment. Also make sure you include any savings accounts, ISAs or investments that will count towards your income. You can work out your likely retirement income figure on the Money Advice Service’s Pension Calculator and decide for yourself if you’re on track to achieve your goal.
If you’re part of an auto-enrolment pension scheme, that’s a good start. Current employee contributions are set at 3% minimum and will rise to 5% next year, which should give a good basic level of income. Dependant on your age and just how much you earn, you may want to pay in more than this to further increase your earnings in retirement. If you should get a pay rise or a work bonus, perhaps consider adding some to your pension pot. You will get tax relief on your contribution and – on some workplace schemes – your employer might increase their contribution too.
Final Salary Pensions Are To Be Treasured
If you are lucky enough to own 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 is generally considered a very good idea to keep them. They will provide you with a guaranteed income and don’t come with the same level of financial risk of other schemes.