Turning retirement hopes into reality

Jessica Mackenzie-Williams

Private Client Adviser

We help many of our clients to prepare for and then manage their income in retirement so that they have a happy retirement. The earlier you face up to this financial planning need, the easier it will be to address.

Research conducted in June-July 2020 of a sample of non-retired UK adults, reveals that a fifth still have no pension savings at all and those near retirement aren’t doing much better. At least 17% of the people surveyed aged 55 and over admit to having no pension savings (other than the State Pension). Across all ages of those surveyed, 21% have no private pensions.

Make retirement hopes a reality
The study also found that 45% hope for a retirement income of at least £20,000 a year, and 61% hope for at least £10,000 a year – despite the maximum State Pension currently being just £9,110 a year.

By discussing your income objectives and reviewing your existing pension savings, our advisers can help you to address any shortfall and create a plan to ensure that your hopes for retirement become a reality.

Give your pension savings time to grow
The attraction of saving into a pension has less appeal for younger clients but as people grow older retirement planning becomes a larger concern. Employees today benefit from auto-enrolment into workplace pensions but despite this 24% of those surveyed aged under 35 claim to have no pension savings at all. The simple fact is that the earlier people start to save for retirement, the greater the potential for growth.

The power of compound growth means that starting to save for retirement as early as possible can be a significant benefit. For example, Charlotte starts pension savings at the age of 20, and invests just £50 a month. Henry waits until he is 40, but invests £100 a month.

By age 60, both Charlotte & Henry have invested the same amount, but because of compound interest over time, assuming a growth rate of 4% each year, Charlotte has a pension savings fund of nearly double that of Henry’s. This example does not allow for the addition of pensions tax relief.

It is never too late to start pension savings and as pension contributions receive basic rate tax relief they get an immediate boost, so for every £100 you put towards your retirement savings the government will add an additional £25 (20%) tax relief and if you are a higher rate or additional rate taxpayer you can also claim additional tax relief through your self-assessment tax return.

Who faces the biggest pension challenge?
In October 2012, pension automatic enrolment was launched and by March 2019, over 10 million workers had joined a workplace pension arrangement.

However the self-employed were left out of auto-enrolment which has caused a sharp divergence between employees and self-employed since 2012. The Institute for Fiscal Studies (IFS) in 2018 reported that 15.1% of the UK workforce (4.8 million people) are self-employed but only 16% of those contribute to a private pension.

Those working part-time also face a potential pension deficit when they retire as 24% of part-time workers surveyed say they have no pension savings. 60% of the sample who are not currently working – whether unemployed or full-time parents – have no pension savings.

Every individual needs to ensure that they have adequate financial planning in place for their retirement.

No room for complacency
Even if you have pension savings in place, it is important that you regularly assess what you have accumulated and also ensure that it is invested in line with your attitude to risk and expectations.

Income in retirement may come from many different sources, including the State Pension which is a maximum of £175.20 a week in this tax year. You can check if and when you will qualify for the full State Pension by going online at www.yourpension.gov.uk. Your State Pension can be a cornerstone for your retirement plans.

Some of those who think they have no pension savings may be pleasantly surprised to find pensions from previous employers they may have forgotten about. It is always worth contacting previous employers to see if there are any pension savings in your name. 

You should receive regular updates from pension scheme providers but if you have not provided an up-to-date address or you have lost track of any previous employer pension schemes, you can contact the employer directly or the government’s Pension Tracing Service. This free service allows you to track down pension scheme contact details from a database of UK employers, go online at www.gov.uk/find-pension-contact-details or phone 0800 731 0193 (Monday to Friday, 9.30am to 3.30pm)

Start 2021 with retirement plans in good shape
Once you have gathered current valuations of your pension savings, our advisers can help to review them and then build a plan to get you on track for the retirement you want.

Our review will include all your income sources in retirement and assess your income needs. We can then discuss and build a plan for you which may need you to save more, change your investment strategy or use your retirement savings tax efficiently so that you get the best from them. We also use cashflow modelling to build in your own retirement goals and help you towards turning these hopes into reality.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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