With an ever-contracting state pension, an ageing population putting the system under pressure, and the decline of final salary workplace pensions, it’s more important than ever to actively plan the way you save for retirement.
In April 2019, the lifetime allowance for pensions increased to £1.055m, although the pensions annual allowance remains the same at £40,000.
That limit might seem far out of reach but pensions are a long-term commitment and it’s possible that even with what feels like a modest schedule of contributions you’ll find yourself nearing the lifetime allowance when the time comes to start drawing your pension.
We’ve put together some other useful pointers for managing your pension, but do talk to us if you’d like more detailed, tailored advice.
When you’re young or entering middle age, managing a career and raising a family, retirement can seem a long way off, and you might feel that there are more important things to be spending on right now than your pension.
As the years pass and retirement looms, however, you might well regret having put off preparations.
It helps to start saving as early as possible, so you can make lower contributions over a longer period of time. This way, you’ll also get into the habit and won’t miss the money out of your pay packet.
While you do want to make sure you’re saving enough for retirement, living unnecessarily frugally would be a mistake – save enough to live comfortably, rather than so much that you don’t know what to do with it.
When you’re working out how much to aim to put away, you might be tempted to base the figure on your current expenditure and lifestyle.
However, most people have paid off their mortgage and are no longer raising children by the time they retire. Other major expenses such as the cost of a daily commute also tend to fade away later in life.
For peace of mind, we’d suggest aiming for a ball-park figure of between half and two-thirds of your final net salary.
If you’re enrolled in a pension scheme through your employer, you’ve probably got a good foundation to build upon.
Under the rules for auto-enrolment pensions, your employer is required to contribute a minimum of 3% of your qualifying earnings, while you make up the remainder to 8%.
If you’re self-employed, however, you won’t have access to auto-enrolment pensions, in which case, you should shop around for a private personal pension instead.
ISAs don’t come with employer contributions like workplace pensions, but they do offer the ability to save up to £20,000 a year, completely tax-free.
This can make them a useful fallback option for savers who are at risk of exceeding the pensions annual allowance.
You can choose either to save cash or invest in stocks and shares via an ISA. In very broad terms, cash is a safer bet, but the returns from stocks and shares could potentially be higher. Which option is a better choice for you will depend on your capacity for risk.
If you own a business, a big part of your retirement planning should be about what will happen to that business once you retire.
You might choose to pass it on to a member of your family, or sell it to a suitable buyer.
Either way, it’s important to plan well ahead of your retirement, so you can make arrangements in a measured way with maximum tax-efficiency.
For example, you’ll want to make sure you claim any tax reliefs to which you are entitled to minimise any capital gains tax bill.
We can help you decide on a retirement saving strategy that meets your needs.