Last week we released our annual Pension Landscape survey which examined the pension pots of over 13,500 consumers. It found that savers across all age groups are undersaving, and may not be able to achieve the comfortable retirement they’re hoping for if they don’t find a way to save more.
Our findings coincide with a new campaign from the Department for Work and Pensions (DWP), which highlights the importance of building on the State Pension in order to end up with the income you want in retirement. They pose the question, “will the retirement you get be the retirement you want?”, and encourage us to get to know our pensions better.
For example, do you want a retirement income that affords you the bare minimum when it comes to creature comforts? Or do you want to enjoy the little extras, such as a holiday abroad, or two, a year and a comfortable lifestyle? The reality is we’d all like the latter, but the majority of us aren’t quite saving enough to achieve it.
Here are five ways to ensure you’re on track for a comfortable retirement.
1. Check your State Pension entitlement
While it’s front of mind, check your State Pension entitlement. By entering just a few details online you can find out how much State Pension you could get, when you can start claiming it, and what steps you can take to increase it if needed.
Remember to qualify for the full State Pension amount of £8,767.20 a year in 2019/20, you’ll need at least 35 years of National Insurance Contributions or relevant credits. For most, £8,767.20 won’t be enough to live comfortably in retirement which is why it’s so important to view this as the foundation of your pension which can be built upon with other savings.
2. Plan for retirement with a pension calculator
A pension calculator can help you calculate how much your pension could be worth in retirement, based on how much you’re currently saving and when you’d like to retire. Most calculators will give you the option of adding the State Pension into the equation so you can see a realistic estimate of what your income is likely to be. That way you’ll know quite quickly if you’re on track for a comfortable retirement or if you could face a shortfall.
3. Pay more into your workplace pension
Once you’ve calculated how much you can expect to receive in retirement it’s likely you’ll want to grow your pot. If you’re aged 22 or over, work in the UK and earn more than £10,000 you’ll probably be enrolled in your workplace pension scheme through Auto-Enrolment. This scheme compels your employer to save 3% of your qualifying earnings into your pension, while you save 5% (4% in reality, plus 1% in a HMRC tax top up).
While Auto-Enrolment is a good start, it only accounts for 8% of your earnings, when a common rule of thumb is to save 15% of your annual salary. Therefore, most will need to make additional contributions to their pensions if they’re to reach their target income in retirement.
If you have the option to pay more than the current 5% into your workplace pension, it might be worth exploring – particularly if your employer will match your contributions.
4. Consider starting a personal pension
If it’s not possible to pay more into your workplace pension, you may wish to open a personal pension instead. Unlike the pension you have through work, a personal pension will be yours to keep, which gives you a lot more choice and control over where your money’s invested.
It also means that when you change jobs you can move your old workplace pension to your personal pension so you don’t lose track and will only ever have one or two pensions to manage.
When analysing the data for the Pension Landscape we discovered that savers of all ages could make a significant difference to their expected pension pots in retirement simply by making an additional contribution of just £100 per month, on top of their 5% workplace contributions.
5. Supplement your retirement income
Nowadays retirement doesn’t have to be a hard stop and and many choose not to give up work completely. Reducing your working hours or going part-time can be a great way to supplement your pension income and maintain an active lifestyle well into retirement.
There are lots of other ways to earn a small income in retirement, such as renting out a room in your home, tutoring or even cat sitting and dog walking. Whatever you choose to do, a few hours’ work a week can add up over a year and could help you afford the little extras that make your retirement much more comfortable.
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.