A retirement roadmap

Retirement may seem like a lifetime away, but the earlier you can start paying into a pension, the better. Here are some helpful tips to remember…

•    Small changes can add up to a big difference

At this stage of your life, it’s an idea to get into a good habit of paying into your pension and getting to grips with the basics of planning for retirement. Edward advocates putting “whatever you can afford into your workplace pension.” Remember that even small amounts, when made regularly, can add up over the years. Thanks to the power of compound growth, you will leave yourself with a far healthier pension pot come retirement day if you start saving now, if you haven’t already begun.

•    Check the overall contributions to your workplace pension

If a company employs you, they are legally obliged to pay into a pension for you, and you’ll also have to pay in a set amount too. The government then tops up these payments. However, it’s important to remember, even if you have been enrolled on a scheme automatically, this level of saving may not be enough to meet your retirement goals. If that’s the case, you may need to increase your monthly payments.

•    Consider an ISA

In addition to a pension, an ISA can be a tax-efficient way of saving for the future. In particular, stocks and shares ISAs can be a powerful way to supplement your pension pot. Unlike cash ISAs, they offer the potential for higher returns over time, helping your savings outpace inflation, without having to pay tax on the growth.

•    Review your pension and investments regularly

It’s crucial to review your pension scheme and investments regularly – even from a young age. Regular reviews ensure that you are making the most of the tax efficiencies available to you. Daniel suggests, “At this stage, a pension is still the right place to be saving for retirement – don’t lose sight of the tax relief, tax-free cash and efficient growth.” For instance, as paying into a pension attracts tax relief from the government, it makes financial sense to use it to your advantage.

Your 50s still give you plenty of time to plan for the retirement you want. By continuing to save into a pension and remaining invested, you’ll still benefit from compound growth – even in times of volatility.

•    Review your financial position

It’s a good idea, if you haven’t for a while, to look at your pension pot and see how that will translate into a projected income in retirement. Then, decide whether that income will provide the desired lifestyle you want when you stop earning a salary. If there is a gap, calculate if it is financially feasible to make catch-up contributions. Don’t forget – there’s an annual allowance you can pay into your pension, which can be rolled over if you haven’t exhausted it in previous years.

•    Consider consolidating pensions if you haven’t done so already

At this stage in your life, you may have pensions with several employers. Moving them into one place and consolidating old pensions can be helpful, as it often simplifies your financial planning and management.

•    Include your State Pension in your calculations

Don’t forget to check and incorporate your State Pension into your retirement plans at this stage. To get the full State Pension, you need to have made the required amount of National Insurance payments over the years. If you discover you’ve not made the number of payments needed, you can make top-ups so you are eligible for the full amount at retirement.

After a long career, retirement could well be on the cards very soon.

•    Consider how and when you will retire

Increasingly, people are phasing themselves into retirement. Doing so can be a great idea on a financial and personal level. Working part-time, for instance, not only means you continue to earn and protect valuable pension savings, it can also make the switch to stopping work that bit easier too. After 40 years of work, giving up a career suddenly can be tougher than many would believe – both financially and mentally.

•    Think about when you will access your pension

Just because you can access any personal pensions now, it doesn’t necessarily mean you should. You will have been allowed to access your personal pension from the age of 55 (rising to 57 in 2028), but depending on your circumstances, you may want to keep paying into your pension instead, until you finally cease working.

•    Determine how you will access your pension

Deciding how to take your pension is one of the biggest financial decisions you’ll ever make. There will be long-term impacts on your income and the tax you pay, depending on what you decide. For instance, you need to consider when you take your tax-free lump sum and whether you use what remains to buy an annuity or invest it to receive a regular, adjustable income (sometimes referred to as flexi-access drawdown).

When making your decision, it’s a good idea to consider the size and timing of withdrawals. Working with an expert to conduct robust cash flow planning is a valuable exercise because if you take too much too soon, you may deplete your savings too quickly, leaving you with fewer options in the future. You’ll need to plan for your money to last – remember that we are all living longer and as a result our pensions have to last longer too, all while costs are increasing.

And, as Edward explains, regularly reviewing your financial position is key – not only to stay on track, but to avoid falling into the 60% income tax trap. “It’s about carefully planning pension income and using capital more flexibly,” he says.

Just because you’re in retirement, it doesn’t mean that you should stop planning for your financial future. Far from it.

Daniel maintains, "Financial planning isn't set in stone – when you’re retired, reviewing your plan regularly matters even more." That’s because, at this stage in life, you now need to balance your income needs against how long you will live, as well as unexpected costs and coping with inflation.

•    Write out your expenses and outgoings

A good place to start is reviewing what your likely expenses will be over time. Earlier on in retirement, you are more active and more likely to go on those much-dreamed-about holidays. Your income needs could be more at this stage of your life. Later on into retirement, you are more likely to pay healthcare costs, which can be substantial.

•    Check your investments against your risk profile

To keep your pension working for you, you need to ensure that your capital is invested according to your risk level. Now that you are not earning a salary, your ability to withstand volatility and capital losses is lower.

•    Make use of your tax allowances

Planning will also ensure that you are using all of your tax allowances wisely – such as your savings and dividend allowances and any capital gains exemptions. Now is a good time to start thinking about estate planning too, if you haven’t already done so.

•    The importance of regular retirement planning

Pensions have undeniably undergone significant changes in recent years – another reason it’s a good idea to review your savings and plan for the future regularly. For example, while pension freedoms introduced in 2015 gave savers greater flexibility in how they access their retirement savings, making the most of those freedoms demands careful forethought. It emphasises why planning what you can control – your payments into savings and pension pots – is so crucial.

But planning for your financial future is complicated, and with the recent changes to pensions falling under a person’s estate for Inheritance Tax, it has become even more complex – especially if you want to leave money behind for your beneficiaries. As Edward puts it, the recent changes have “highlighted the real value of advice” as navigating pension and tax legislation is challenging – especially when it is updated so frequently.

•    Making retirement planning a lifelong habit

Whether you’re in your 30s or in your 60s, retirement planning should be seen as a lifelong, ongoing process. That’s because, as rules surrounding pensions evolve, so do your needs and circumstances.
Starting early and reviewing regularly means you have the power to make your money work as hard for you as possible, while also making the most of the tax benefits available. Daniel agrees, “While the headlines may change, the fundamentals of retirement planning don’t.”

Because, ultimately, retirement is something we should all be looking forward to. And with the right planning in place, it absolutely can be.