19/01/2017
The BBC published an article on its website last week outlining what you’ll need to save to draw a pension of £20,000 a year. Although some may find it disheartening – and to be honest, the subject does have plenty of potential for that – it’s definitely worth a read as it certainly gives food for thought, please click here, http://bbc.in/2jIyHIG.
Hopefully, most people reading it will take it as a spur for some positive action, perhaps taking a pragmatic look at their own situation to better understand what they need to do.
The basis of the article is the Office for National Statistics’ (ONS) recently released figures showing that the ‘average retired household’ now spends £21,770 a year: the article going on to ask what you would need to save each month to meet that.
Everyone’s circumstances are different so it’s impossible to give a ‘one-size-fits-all’ answer – except that, the best thing anyone can do is to talk to a suitably qualified, independent financial adviser. Pensions are as important as they are complicated and it’s really not a good idea to leave something so important to chance. What you may be putting off because of a lack of knowledge and understanding might be quite an easy task for someone who does fully understand the subject.
The second bit of advice is to make sure you keep your National Insurance contributions up to date. If you qualify for a full State Pension when you retire you’ll receive just over £8,000 a year (at current rates) which brings that ‘£20,000 a year’ down to a less daunting £12,000 a year.
Thirdly, if you’re an employee you need to make sure you enrol, or stay enrolled, in your employer’s workplace pension scheme. Auto enrolment was introduced in 2012 making it a statutory requirement for every employer, even if they employ only one person, to enrol ‘eligible jobholders’ into a workplace pension scheme. If you don’t qualify for automatic enrolment you may qualify as either a ‘non-eligible jobholder’, which means you can opt-in to the scheme, or an ‘entitled worker’, which means you have the right to join one.
The importance of joining a workplace pension scheme is a ‘no-brainer’ as, not only do you make a contribution, so does your employer. You also receive tax relief on the contribution you make which is added to your pension pot, helping it grow even faster. For example, you make a net contribution of £100 a month from your wages into your pension scheme. As a basic-rate taxpayer you receive 20% tax relief (£25) which the scheme provider claims from HMRC and adds to your pension pot, making your gross contribution £125. Your employer matches your gross contribution and pays an additional £125 into your pension pot. So, you’ve made a £100 contribution toward your pension, but your pension pot has received £250 – what’s not to like? If you’re in a higher tax band the amount of tax relief you receive may be greater.
If you’re self-employed, personal pension plans offer you the flexibility to make contributions as and when you can or to increase or decrease them depending on how profitable your business is.
But the most important thing you can do, no matter how old you are, how much you earn or how you earn it, is to talk to a professional. They’ll review your circumstances, explain your options and talk you through what you really need to do. Even if you can’t put the plan into action straightaway it’s a positive start, you’ll have confidence in what you have to do and you’ll have met someone who can help you do it.
How much do you need to save every month to get a decent pension when you retire?
