12 tips to ensure your pension pot will help you achieve your dream retirement
Now is the time to start thinking about planning for your retirement, no matter what age you are. Your pensions, whether you are an employee, self employed or run your own business are a central part of the plan to give yourself a comfortable retirement.
The advice we give to our clients at Jacobs Allen Chartered Accountants and Chartered Tax Advisers is that the earlier you start saving, the better chance you stand of building a substantial fund for your retirement but it is never too late and no matter what your age, we can help.
Whether you are just starting out or simply looking to review your pension savings, our team of professional qualified experts are here to offer advice on the most tax effective ways of saving.
Those who have either worked in the UK or claimed National Insurance credits from the Government for a total of 35 years will be eligible for a state pension once they reach a certain age. However, the cap is currently set at £122 a week while the consumer association Which? estimates the average person needs £26,000 a year to fund a comfortable retirement. But check your personal circumstances.
Saving through a personal pension or a workplace pension can help bridge this gap and if you start saving at the age of 20, you will need to contribute £131 a month to achieve the target but if you wait until you are 50 you will need to put in £633 a month.
Conscious that many workers are not prepared for the future, the government introduced auto enrolment in 2012 and since then seven million workers have been enrolled in workplace pensions, with payments deducted from their salaries. Employers and the government also make contributions to boost the savings.
The personal pension is aimed at those who are self-employed or who want to further supplement their pension pots.
Here we offer our top tips for planning ahead:
- Chip away at your debts – whether it is a credit card debt, student loan or mortgage, paying them off as early as possible will free up resources and allow you to save more for your retirement in later years
- Don’t be tempted to opt out of auto enrolment – 1% of your pay packet is a tiny amount and it would be short-sighted to forfeit your employer’s contributions, especially as this will rise to 3% in 2019
- Consider a Lifetime ISA – this allows you to put aside up to £4,000 a year while earning an annual 25% bonus from the government. Starting early means you could earn up to £32,000 on your savings.
- Take out a personal pension – this is essential for those who are self-employed or caring for relatives or children. You will get tax relief on contributions even though you will not benefit from employer top-ups.
- Don’t cut back on your pension when you are feeling the squeeze on your finances – keep up your payments even when you are stretching yourself to buy that first home, start a family or funding university education for your off-spring.
- The more you earn, the more you should save – keep upping your contributions as your salary increases to ensure your pension is as healthy as possible when you reach retirement
- Consider your partner’s pension provision – assess your combined contributions, how much you have amassed jointly and how it is invested to establish if you will have enough to fund your dreams.
- Check your state pension age and get a state pension forecast – this will give you an indication of when you can retire and how long you have to reach your savings goal. If you are well prepared you could draw start to draw your personal pension from the age of 55.
- Think about how you will take your pension – options include annuities, income drawdown and lump sum payments. Remember, the first 25% of your withdrawal will be tax-free and the rest will be taxed at your usual rate.
- Check for gaps in your state pension – if you do not have enough qualifying years you can make them up by paying class 3 NICs. You have to pay the voluntary contributions within six years of the missed year so keep track of your payments.
- Check each pension arrangement you have to ensure that it is set up in the most favourable way to benefit your partner as well as you, just in case anything should happen to you.
- Start early – this is the most important piece of advice we can offer, the later you leave it, the bigger the mountain you have to climb.
Contact us today for advice on planning for your retirement, call our Bury St Edmunds branch on 01284 704260 or our Haverhill offices on 01440 707184