How much will you have to live on when you retire? Have you put the right provisions in place? Will you get the retirement you want? There’s plenty to think about when planning for later life, so we’ve put together the top 10 things you need to know.
1. As I have my State Pension, will I need to save?
A full State Pension is around £8,750 a year according to 2019/20 figures.
It is based on your National Insurance contributions throughout your life, so yours may be higher or lower than this. You can Check your State Pension online to find out what you could get, and when you can get it, or find out more about National Insurance contributions.
The State Pension is a good foundation, but for many people relying on this could mean a fall in income upon retirement. Saving into a workplace pension, or in other ways, means you’ll be better prepared to get the retirement you want. Even if you’ve left it until much later, there’s always time to start building up a pot and saving for the future.
Get a personal retirement checklist to fully explore your saving options.
2. My Grandma only lived to 70 so surely I won’t live much longer. Why bother saving?
People tend to underestimate how long they are likely to live, and life expectancy is changing fast.
People are living longer. A girl born in 1951 was expected to live to 82 and a boy to 77, but by 2018 this had increased to 92 and 90 respectively. Increasing life expectancy means people may have to save more to get the retirement they want, so get into the habit of saving regularly.
3. Am I saving enough?
Workplace pensions are one of the easier and best ways to save. You’ll pay into your pension from your wages, and when you pay in, your boss pays in too. You also get tax relief – so your pension pot grows even faster. In most cases, your employer will automatically start up a workplace pension for you when you start work.
Some pension schemes will let you increase the amount you can save into your workplace pension, which can help you save more for the future. Some employers will even match what you pay, so when you pay more in, so do they! Talk to your employer or pension scheme to find out how this works.
You can choose to stop paying into your workplace pension, but then you won’t be giving yourself the best chance of getting the retirement you want. If you cease contributing, so does your employer and you’d be losing out on that extra money on top of your salary. Even if you need to stop for now, try to start saving again as soon as you can.
4. Are my pension contributions tax free?
When you pay into a workplace pension, you usually do not pay income tax on your contributions up to £40,000 a year. Your contributions come from your pre-tax income. That usually means your pension pot is growing even faster.
You may get tax relief on some personal pensions, but make sure you check the rules online.
5. Can my house be my pension pot?
Many people plan to rely on the equity built up in their property when they retire. But of course, you may need to sell or downsize to actually release that money. Make sure you understand the rules about paying tax on that income too.
6. How is my pension protected?
Pensions are protected in various ways to make sure you do not lose out.
In most cases, your pension pot is your money, invested in your name. If your employer or pension provider goes bust, your money should be kept safe. In most cases it is also protected by the Financial Services Compensation Scheme (FSCS).
Some pension schemes work differently. Defined Benefit (DB) schemes (sometimes known as ‘final salary’ or ‘career average’ schemes) normally promise to pay you a specific amount when you retire. The majority of these pensions are covered by the Pension Protection Fund (PPF). If your scheme is eligible and your employer goes bust, the PPF will usually cover 100% of the money you were receiving when your employer went bust if you were retired and over the normal pension age for your scheme. If you have not yet reached the normal pension age for your scheme, your compensation payments will be reduced to 90% of the pension you were due, subject to a cap.
7. Can I join my company pension scheme before 22?
It is a legal requirement for your employer to offer you a workplace pension once you’re 22 and earning more than a set amount, but most employers offer them to younger people too. If your employer hasn’t automatically offered you a workplace pension, then you have a right to ask to join. If you earn more than £6,032 a year (around £116 a week) then they also pay in for you, so your pension pot will grow even faster.
Starting early can make a huge difference, so try to get into the savings habit. If you save early on, you’re allowing your pension pot even more time to grow.
8. Can I stop paying into a pension once I’ve begun?
Most pension schemes allow you to start, stop, top-up and amend your contributions. Some will even let you pause them for a while. You need to check the rules with your pension provider.
However, if you stop contributing into your workplace pension then your employer will also stop contributing, so you’re missing out on that additional money and slowing your pension pot’s growth. Starting early, and saving throughout, means your pension pot has the most time to grow.
If you do need to stop for whatever reason, then try to restart as soon as you can. You can ask to re-join your employer’s pension scheme at any time, but bear in mind that employers do not have to accept eligible workers back into their workplace pension scheme if they have left in the past 12 months.
9. Will I be forced to retire when I get to the State Pension age?
Retirement does not have to be a finish line.
You do not have to stop working just because you have reached a specific age. For many people, working in a different way can be a good bridge into retirement. Staying in work means you can keep earning and keep saving too. Slowing down, working flexibly or even doing a different job could be the right thing for you.
A mid-life MOT can help you to get the retirement you want, with guidance around your money, work and health.
10. When can I get my pension?
Different pension schemes have different rules.
Some older schemes, such as Defined Benefit (DB) schemes, have a set age when you can get (or start to get) your pension. In most newer DB schemes, you usually claim your private pension at the same age as you get your State Pension. Check your paperwork or talk to your pension provider to see how your pension scheme works.
Most modern pensions are called Defined Contribution (DC) schemes, where you pay in a set percentage of your salary. You can start to access these savings from the age of 55 if you want, but it’s important to get guidance from Pension Wise before you cash in your pension pot. You have different ways to access your money, and there are scammers out there trying to get hold of it too.
Plan ahead to get the retirement you want. This website has plenty of information on having more in retirement, working differently in later life and how getting a mid-life MOT can help you take stock of your work, wealth and wellbeing.