Retirement planning in your 40s

When you get to your 40s, you may feel at a crossroads between financial commitments in the present and starting to really think seriously about saving for when you retire in the not-so-distant future.

By this stage of your life, you may have grown well accustomed to paying expenses such as mortgages or rent, loans, bills, childcare and so on. Saving towards your pension might’ve taken a backseat to all of these things as you’ve established yourself financially. Thankfully it’s not too late to start thinking about your retirement goals and this article will explore the tools you may need.

What to do with your pensions


If you’re starting to think about retirement, you may consider when you might want that to be and what it could look like. Maybe you’ll want to retire early or work part-time. You may want to think about whether you’ll want your overall income to be similar to what you’re earning now, or perhaps you’d prefer to follow one of the Pensions and Lifetime Savings Association’s Retirement Living Standards as a guide for what you may need?

Whatever your decision, it’s important to remember that from 2028, the earliest withdrawal age for private and workplace pensions will rise from 55 to 57, with the potential for further rises in the future. It’s also likely that, if you’re currently in your 40s, you won’t receive your State Pension until you’re at least 68 as the current legislative plans are for this rise to happen between 2044 and 2046. You might find it helpful to use our State Pension age calculator to see if you’re currently on track to be able to retire before your State Pension age.

Consider your tax relief

The decision to put cash into a private pension can be a difficult one to make when you know it’ll be several years until you can touch it. While you won’t have as long to wait as someone in their 20s or 30s, there’s still a significant amount of time that needs to pass when you’re in your 40s before you can access your funds. On the other hand, it could be a good time to look at how your savings could potentially grow in that period, especially as contributing to a pension can be a tax efficient way of saving.

If you’re an eligible basic rate tax payer, you’ll get a 25% tax top up from the government. So, for every £100 you contribute to a private pension, HMRC will usually add an extra £25, making it £125. You’ll get tax relief on all eligible contributions up to £60,000 for tax year 2024/25 or 100% of your salary per year (whichever’s lower), so if you do have some cash to spare, this could be a good way of building up your pension. If you’re a higher or additional rate taxpayer, you can claim further relief through your Self-Assessment tax return, which essentially means even more extra cash on top of every contribution you make. To get a better picture of how much tax relief you’ll get, you can use our pension tax relief calculator.

Look at your pension contributions

It’s been over a decade since Auto-Enrolment was introduced into workplaces across the UK. Each time you start a new job, it’s now a requirement for your employer to enrol you into a workplace pension scheme as long as:

  • You’re aged 22 or older
  • Work in the UK
  • Aren’t already a member of a suitable workplace pension scheme
  • And earning at least £10,000 per year.

This means that you’re likely to have one or more workplace pension pots if you’ve changed jobs anytime over the last 10 years, unless you actively opted out.

Workplace pensions will have a minimum pension contribution amount for both you and your employer. For most people that will be around 5% of qualifying earnings from you and 3% from your employer, totalling 8%. This doesn’t mean you can’t contribute more. If you feel you can afford to increase your personal contribution, it’s worth having a conversation with your employer to see if they’ll also up theirs. Some employers will have provisions to increase the amount they pay in and may match your contributions up to a certain limit. You can see what your pension could look like if you upped your contribution using our pension calculator.

Consolidate your pensions

Now that you’re in your 40s, there’s a good chance that you would have been working for 20 years or more. That may mean you’ve got lots of different pension pots from all of your past employers scattered around.

It may make it easier to plan for retirement if all of those pots were in one place. You can transfer your old pensions to PensionBee for free and combine them into one easy-to-manage pot. This can simplify managing your pension as you’ll be able to see one overall balance in your account telling you exactly how much money you’ve saved for retirement.

Other financial considerations

Diversify your savings

You may have other savings outside of your pensions, or maybe you’re considering opening some new savings accounts to complement your pension?

There are various types of Individual Savings Account (ISAs) which can be a tax-friendly way of saving. That’s because you won’t pay tax on any interest earned. Each type of ISA has its own rules, so it’s important that you understand how they work before you decide to invest in one. You can open multiple ISAs, but there’s a limit on how much you can pay in across all of your accounts. This is currently £20,000 per year for tax year 2024/25.

You may already have what’s known as a LIfetime ISA or ‘LISA’. These are designed specifically for buying a first home or retirement. If you use a LISA to pay towards one of these, much like a pension, you’ll get a 25% top up from the government on eligible contributions. However, it may be that you’ve already bought a home by now, and you’ll lose your 25% bonus if you withdraw your money for anything outside these two circumstances. Therefore if you keep your LISA for your retirement, you can still contribute up until the age of 50, and you’ll keep your bonus as long as you take your money from age 60 at the earliest. The maximum you can save into a LISA is £4,000 per year and that counts towards your £20,000 overall ISA allowance. Unfortunately, you won’t be able to open any new LISAs from the age of 40 onwards.

Look at beneficiaries

By now your family might have grown. You may’ve been married, had children and gone through many other life events. So it might be worth thinking about how to protect your loved ones. If you want to be specific about who gets what in your estate, your easiest option’s to write a will. This can also save your loved ones a lot of hassle when you’re gone.

Your pension will usually fall outside of your estate which means it’s usually exempt from inheritance tax. Therefore, if you’d like to leave money behind for a loved one, you’d need to add them as a beneficiary in your pension policy using an ‘expression of wish’ form. It’s also worth mentioning this in your will so your intentions are crystal clear.

Get a life insurance policy

To further protect your family, you may want to consider getting life insurance. By your 40s, you’re likely to have a good idea of what your finances look like which can make it easier to purchase the right amount of cover you’ll need. There’s also a better chance that your premiums will be lower than if you were to take out a policy in your 50s or 60s. LifeSearch offers mortgage life insurance, family life insurance and critical illness cover and if you aren’t sure what policy you need, you can speak to one of their experts or compare policies online.

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.

Last edited: 06-04-2024

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