There’s been a lot of talk about pensions in the news recently, covering the recent rise in the state pension, pension charges and the possibility of more flexible annuities for retired people. We outline our top five tips so you can be sure your planning is on track.
1. Save and plan
The often mentioned advice given about saving for your retirement is that you should start saving as early as possible. This isn’t always possible with all the other financial challenges that we face.
It is, however, worth considering how much money you think you’ll need when you are retired. This will change as you lose some of your other financial burdens, but you should consider your mortgage, any dependents and other sources of income.
Depending on your age and circumstances, you’ve probably got some private pension provision already and will be due some state pension when you retire.
2. Tidy up your existing pension arrangements
The state pension and second state pension could form the core of your income once you reach the state retirement age. How much you’ll receive will depend on the number of years you’ve made the minimum level of National Insurance contributions.
If you have money purchase pension schemes then your annual statement will give you an idea of the fund value, although the ‘transfer value’ will probably be lower.
You might not be able to remember all the pension schemes that you’ve paid into during your working life. The government’s Pension Tracing Service can help you track down lost pots.
3. Maximise your company options
Taking advantage of the company pension scheme offered by your employer is very important. Your employer will usually contribute to the scheme and you’ll get tax relief on your contributions.
The system of auto-enrolment being means that your employer will automatically enrol you into the company’s pension scheme, unless you choose to opt out. The employee (4%), your company (3%) and the government (1%) will also contribute to these pensions.
Some companies still operate generous final salary pension schemes, but the number of these schemes dwindles each year.
4. Sort out your other finances
For most of us, our commitment to contributing to a pension is tied up with the state of the rest of our finances. We can only afford to consider saving if our day-to-day finances are in a healthy state.
Paying off your debts before you reach retirement is a must. Using your pension income to pay interest on borrowing can have a huge impact on your lifestyle.
Considering putting money into a tax-free cash Isa or stocks and shares Isa can give you more flexibility as you approach retirement.
5. Review regularly
Your priorities will change as you move through your working life, but you should review your retirement saving provision on a regular basis.
If you are saving for a house, or perhaps taking a career break, saving for your future retirement won’t be at the top of your priorities.
As you approach retirement you’ll have a better idea of what your retirement income will look like, and may need to increase contributions to give your fund a boost. You may need to seek independent financial advice to talk through your options.