Pensions are one of the most effective and secure ways to save and build funds for your retirement. Each year Pension Awareness hosts a week-long campaign for Pensions Week with informative live shows aimed at informing people about pensions and how best to invest in your future. This year, Pensions Week runs from September 11th to September 15th. Check out their website for the live seminars and advice.
April 2016 saw the introduction of the new State Pension. The new State Pension is available to men born on or after April 1951, or women born on or after April 1953 and who have a minimum of 10 years of National Insurance contributions. The full State Pension is currently £203.85 per week. You will need to meet the threshold of 35 years of National Insurance contributions to be eligible for the full amount.
If you currently have other pension plans such as a personal or workplace pension, you can still receive the new State Pension on top. It’s important to consider the type of lifestyle and expenses you will have in your retirement and if the State Pension will suffice.
The full State Pension of £203.85 equates to £10,600 a year, which depending on your individual circumstances and expenses, may not cover your costs and lifestyle choices. You should consider how much you will be entitled to, considering that the full State Pension rates are only eligible to those with a minimum of 35 years of National Insurance contributions. If you have found yourself with fewer years of contributions (but over 10), your State Pension will be less. Can you afford to live on less than £10,600 a year? Will you still have a mortgage to pay for?
Investing in a workplace or personal pension can help top up your State Pension and provide a more comfortable retirement. The Retirement Living Standards showcase what retirement can look like at different levels. They take into consideration the costs for common goods and services and the amount of luxuries, such as eating out or holidays you could enjoy.
If you wish to retire comfortably and ensure all your bills are paid, you will want to look at investing in your Pension. Be sure to take into account what costs you may still incur at retirement age, including outstanding debts or Mortgages, as this will impact the weekly pension amounts you require.
October 2012 saw the introduction of the Auto Enrolment Workplace Pension across all companies no matter what size of business. Both you and your employer will contribute to this pension with a minimum of 8% contribution in total required. Employers have to contribute a minimum of 3% and you then make up the rest. Some employers pay more and some will match your contributions even if you increase from the standard 5%.
If you are currently employed, you should have automatically been enrolled on your company’s workplace pension – unless you have opted out. You can opt out of your pension at any time but you won’t receive any of your funds until you retire. The value of your pension can still grow or potentially go down, depending on the fund’s investment performance. If you opt out, the funds can only grow so much as the more you contribute, the more there is to invest in the long term.
Depending on what age you started contributing to your pension, will determine how much you will have accrued come retirement. You should use the pension calculator to work out how much you will likely have invested come retirement. You can then add this to your State Pension entitlement and determine if this is enough for you. To live a moderate retirement according to Retirement Living Standards, you will want a yearly retirement spend of £23,300. An additional £12,700 on top of the full State Pension. Will your work pension cover this? Do you need to consider increasing your contributions?
The best time to start is now. If you work full-time and are over 22 years old, you will automatically be enrolled. However, if you work full-time and are under 22, you can still opt-in to a pension scheme. The best practice for contribution amounts is half your age. So if you can, it’s always best to start young. If you are 22, you should then aim to have a total contribution of 11%, with a minimum of 3% coming from the employer. If you are older your percentage will be higher.
It is always worth checking with your employer and seeing if they match contributions. This can help you to boost your 8% up to 10% without any additional costs to yourself! You can also invest in a personal pension. These are contributed by yourself only, with no input from an employer.
If you are looking for pension advice and guidance, be sure to check out Pension Awareness and the Gov website. Pension Awareness offer free and impartial advice and can direct you to the best resources available.