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Pensions can be quite complicated so please do get in touch with one of our Pension advisers to talk you through the options available to you
27% don’t think they can afford to save for retirement
13% are put off because they think they don’t know enough about pensions
7% think it’s too early to start saving for retirement and 3% think it’s too late
Pension Advice you can depend on
Personal pensions may be suitable if you’re employed and not in a company pension scheme, or as an addition to a company pension. You may also wish to set up a personal pension if you are self-employed or if you are not working but can afford to put aside money for retirement.
You pay a regular amount (usually monthly or annually), or a lump sum to the pension provider who will invest it on your behalf. The final value of your pension fund will depend on how much you have contributed and how well the fund’s investments have performed.
You can take a pension commencement lump sum of up to 25% of the value of your pension savings (or 25% of your remaining lifetime allowance if less), which is currently tax free, when you reach minimum pension age (currently age 55). The lifetime allowance for the tax year 2018/2019 tax year is £1.03 million.
You then have two main options:
- Use the rest of the fund you have built up to buy an annuity (a regular taxable income payable for life) from a life insurance company. This does not have to be the same company that you have your pension plan with.
- Take a regular or ad hoc income (taxed at your normal Income Tax rate) from the remainder of your fund while it remains invested (known as flexi-access drawdown)
Confused about pension planning?
How much money do you think you’ll need to receive each year of your retirement?
According to the investment manager Schroders, working people in the UK aged 55 and over believe this figure would equate to 66% of their current income, but the reality according to UK retirees is actually 53%.
Despite the 13% shortfall, the majority of retired people (92%) felt their retirement income was sufficient. This may not come as a surprise if we consider they are likely to be part of the baby boomer generation and therefore enjoy significant wealth compared to future generations of retirees who quite possibly won’t have the benefit of a final salary pension plan.
It might also be the reason that these pensioners can afford to invest one fifth of their retirement income, with the aim of further improving living standards later in life – putting money away for potential care costs, or perhaps boosting their estate for the benefit of their descendants.
The fact remains, however, that expectations can often differ from reality; creating a potential shock in store when you reach retirement. In its report, for instance, Schroders found that while people of working-age might expect to spend 38% on living costs in retirement, the figure is closer to 53%.
It’s clear that the more you save, the more comfortable your retirement (subject to the usual investment ups and downs of course). And when it comes to making investment decisions for retirement, advice is key.
Whether you’re early on in your career and just starting to think about putting money aside for retirement, or your last day at work is looming and you’re preparing for a new phase in life, the investment and savings decisions you make now can make all the difference to how comfortable you are in your retirement.