It’s not often you see a good news story about pensions in the press; the vast majority cover the fact that not enough people have them and that those that do probably haven’t saved enough.
In fact, just this week research from Aegon revealed that one in seven people approaching retirement don’t have a private or workplace pension in place.
That follows research from Zurich that reveals almost half of women aged between 25 and 39 are not saving for retirement, and a study from the Pensions and Lifetime Savings Association suggests that about 53 per cent of the workforce are at risk of an inadequate income in old age.
So it’s frankly no surprise that a study from LV= has revealed people aged 45 to 54 spend more time planning their holidays than thinking about their retirement. Holidays are fun and pensions just plain old aren’t.
However, for those of us who’d like to keep being able to afford holidays and other fun once they leave work, pension savings are essential.
Fill your pot
The consumer champion Which? Recently revealed the average amount a retired couple need to cover their household essentials like food, heating and housing is £18,000 a year.
If they want to be able to afford extras, such as leisure activities and holidays, they will need an average of £26,000 a year in today’s money.
Once the state pension has been factored in, that means a couple would need a defined contribution pot worth £210,000 in today’s money to achieve their income goal in later life.
Of course, it really helps if you have time on your side. To set aside sufficient sums a couple aged just 20 only need to save £131 a month from that time. However, if they don’t begin saving until they reach 30 that rises to £198 a month and to £338 a month from 40.
Those who have saved nothing by their 50th birthdays would need to set aside an average of £633 a month in order to fund the old age they desire.
OK, so far, so bleak for those who aren’t saving enough or who haven’t started. So if you’re reading this and you know you should be doing more to prepare your pension pot for the day you come to rely on it there are things you can do.
If you’re confused about how much you have or need to have saved, or if you’re worried you don’t have enough then you are not alone. That’s why the Pensions Advisory Service has come up with seven top tips for making sure your pension pot is as healthy as possible before you come to rely on it.
Know what you need
What exactly is “enough”? It’s a basic point but have you actually thought about how much you will need in retirement? You will need to consider your monthly bills and expenses, and whether you will be paying rent or a mortgage or living in a home you own outright.
Factor in your state pension and any other income you may have, and you can see the size of the gap your pension needs to fill.
Check your National Insurance contributions
Your state pension will be very useful to have in retirement no matter how much you manage to save elsewhere. But it’s essential you don’t take it for granted without checking you will qualify.
Remember, it’s not the amount you pay that counts but the number of years you have paid in – currently you need to have 35 years’ worth of contributions or credits to qualify for the full state pension.
You can check your National Insurance record online. The tool will also tell you whether you can pay voluntary contributions to fill any gaps and how much that might cost.
Automatic enrolment began in 2012 and is currently being rolled out across the UK. That means that if you qualify, and most workers will, then you will be automatically signed up to your workplace scheme.
Once that happens you will have a month to decide whether you want to opt out or not. Do nothing and you will remain enrolled, meaning both you and your employer will make contributions.
Stay in the scheme so your employer contributes. You will also benefit from tax relief on your contributions so it just makes sense to stay in.
Save more if possible
If you can put more into your pension you should, so if you receive a pay-rise or a bonus then it’s a great idea to ring-fence that money for your retirement savings.
Of course, it’s not always easy to do that, life can be very expensive, but it’s simply essential to make some provision for retirement.
Maybe there are ways that you can increase your income in order to free up cash for your savings. There could be many ways – you could cut back your discretionary spending, rent a room to a lodger, ask your employer for a few hours of regular overtime.
If you can save more then you really should.
You can’t start too early (or too late)
If you’re younger then it’s easy to delay, if you’re older then it’s easy to despair. But either way, it’s never too early or too late to begin a pension.
While young you have plenty of years for your investments to grow. And if you’re older then there’s tax-relief on your contributions to ensure it grows as well as some investment growth.
With pensions there’s no such thing as too early or too late.
Check your pension
Once your pension is up and running you need to keep tabs on it so you can check it’s performing as you would expect. Whatever pension scheme you are a part of will provide an annual benefit statement, which should show you how your pot is performing and whether you need to review your investment options, contribute more or even set up an additional pension.
The Pensions Advisory Service warns that many people only look at their pension as they come to retire, by which point it is often too late to take action.
Get some help
If you’re confused about any aspect of your pension or the rules more generally then it’s a good idea to seek help. You could talk to your pension provider, speak to a financial adviser or contact the Pensions Advisory Service helpline for free and impartial guidance.