6 ways to protect yourself from the UK pension crisis

Rachael Oku

by , VP Brand and Communications

at PensionBee

17 Apr 2018 /  

6 ways to protect yourself from the UK pension crisis

Much has been said of the “ticking time bomb” of British pensions in recent months, with experts predicting a full-blown UK pension crisis. Yet in spite of the headlines and genuine worry among savers, it isn’t all doom and gloom. There’s still a lot you can do to grow your pension and protect your retirement fund – you just need to know how!

Why is there a UK pension crisis?

The pension crisis has been brewing for a while. The fact that Brits are living longer, not saving enough and, in some cases, accessing their pension early, is proving problematic. Add to that the end of final salary pensions and a lack of awareness around the benefits of saving from an early age, and it’s not hard to see why Brits are being caught short.

Millions of us just aren’t saving enough to retire comfortably, which is forcing our aging population to work for many more years than previous generations. ONS figures show that there are just 1.2 million retired Brits under 65, down from 1.6 million in 2011. 10 years ago just 434,000 over 65s were still in work, compared to 10.1 million today.

There are just 1.2 million retired Brits under 65

Women in particular have been hit hard with a pension age increase and a persistent gender pay gap. The average 50-year-old woman has saved just half the pension pot of the average 50-year-old man, with the gap widening the closer they get to retirement.

How to avoid pension problems

Thankfully there are lots of things you can do to protect yourself from a shortfall in retirement. For when it comes to managing your pension, knowledge really is power and it’s never too late to start saving. Here are several things you can do now to avoid pension problems in the future.

1. Don’t put off saving into a pension

We know that saving your hard-earned money for a rainy day can be painful, especially when there are so many fun things you could be doing with your cash instead. We’ve heard all of the excuses why people don’t save – from being too young to wanting to live in the moment instead – yet these are the very reasons why Brits are suffering.

Pensions aren’t supposed to be sexy. They’re practical and essential to protecting yourself in retirement. They can help you achieve the fantasy lifestyle you’ve always dreamed of having or they can leave you facing the reality of life on the breadline. Building a decent pension isn’t a choice as much as it is a necessity to maintain the lifestyle you’ve become accustomed to in your working life.

The sooner you start saving the less painful it will be

The sooner you start saving the less painful it will be. Data from Scottish Widows shows that the amount you’ll need to save to draw an annual pension of £23,000 increases significantly the later you leave it. At 25 you’ll need to save just £293 a month, rising to £443 a month at age 35. Wait until you’re 45 and you’ll have to part with £724 a month and a whopping £1,445 aged 55.

2. Calculate how much to save into your pension

How much you’ll need to save into your pension depends on a lot of things, including your salary and how long you have left to save.

Our handy pension calculator will help you figure this out based on your current age, how much you already have in savings, plus the age at which you’d like to retire and how much you’d like to get each year.

Let’s say you want to retire at 65, with a retirement income of £30,000 a year. Our calculator will tell you how much you’ll need to save each month to reach your £30,000 target. Find out more about our pension calculator and how to work out pension contributions in the Pensions Explained section of our website.

3. Make regular contributions to your pension

It’s widely believed that retirees will need around 70% of their salary to live comfortably in retirement so don’t underestimate how much you’ll need to save. 15% is a good portion of your salary to set aside for retirement, but don’t forget that this amount will need to increase the later you start saving.

15% is a good portion of your salary to set aside

Try and save the maximum amount that you can comfortably afford on a regular basis and if you come into any extra money, try and save some of that too. You can save up to £40,000 or 100% of your annual salary into your pension each year, depending on which is lower.

Alongside the money you pay into your pension, it might be possible to increase the level of Auto enrolment employer contributions you receive. From 6 April 2018 your employer is required to pay a minimum of 2% of your qualifying earnings into your pension. Some employers may also offer what’s called contribution matching, where increasing the amount you save into your pension will encourage your employer to pay more in too.

4. Find your old pensions

One of the best things about working in today’s job market is the wide variety of opportunities that are available. It’s likely you’ll have several employers before you retire and that means several workplace pensions. If you’ve already got a few under your belt, you’ll need to trace your old pensions and check your statements regularly.

Out of sight, out of mind doesn’t work so well for pensions as lots of things can happen over time to affect the size of your pot such as records being lost and high fees wiping out your pension.

The government’s Pension Tracing Service can help you find old workplace pensions or you can contact your old employers directly to try and find the details. Leaving them where they are could end up costing you…

5. Combine all of your pensions into one pot

If you manage to track down some of your old pensions you’ll have several pension transfer options, including transferring them all into one pot. It’ll make it much easier for you to manage your pension and see what’s going on, as well as reducing the fees you pay on each individual pot.

When you choose a PensionBee plan we will transfer any old pensions you tell us about into one pot that you can easily manage through an online dashboard. You can see how close you are to reaching your savings target and ensure your savings are growing in the right direction. You just need to provide us with a few bits of information including the pension provider name(s) and the policy numbers (if you have them to hand).

6. Don’t rely on the State Pension

The way things are going you’re unlikely to draw your State Pension until your late sixties, so you’ll need to consider what you’ll live off if you need to stop working before then. By the end of this year the State Pension age will become 65 for men and women, rising to 66 by 2020 and 67 between 2026 and 2028.

To qualify for the full State Pension you’ll need to have paid National Insurance Contributions for at least 35 years. And even then the total amount you’ll receive is just £8,296 a year – a long way from the amount you’re likely to need.

Rather than relying on the State Pension to fund your retirement, you should use it to supplement the income you’ve built up in your personal or workplace pension. So by the time you get to State Pension age you’ll have a little extra money in your back pocket.

If you don’t have 35 years of National Insurance contributions because you’ve taken time away from work to raise a family, you may be entitled to National Insurance credits. Read our tips to find out how stay-at-home mums can build a pension.

The future of pensions

Even though the future of pensions in the UK seems uncertain, you can protect yourself by following the simple tips above and by managing your pension more efficiently.

On one hand the government’s struggling to regulate the State Pension age and as the population continues to age, it’s perhaps inevitable there’ll be more rises in the future, along with increased tinkering to the triple lock.

Yet, on the other hand, the government’s Auto Enrolment scheme has been hugely successful in ensuring Brits have a workplace pension that they can access from the age of 55. And with minimum contributions for employees and their employers set to rise to a total minimum contribution of 8% by April 2019 things are moving in the right direction.

How are you protecting yourself from the pension crisis? Tell us in the comments below.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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