Expert financial advice:
pensions & retirement

Pension Reviews & Retirement Planning

The main concept regarding these two concepts is saving money for the future. Pensions and retirement planning are both crucial aspects of a successful post-work life. It includes working out how much state pension you’ll receive to how to get the most out of your private pension and plan your retirement.


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Types of Pensions

There are three different types of pensions. These include a state pension, work pension, and personal pension. All of these pensions have unique benefits as well as detriments.


State Pension

State pensions are the largest benefit sector of spending by the Department for Work and Pensions.

Pros

Deferring your pension will increase your overall rate of return by 1% every 5 weeks. After doing the math this comes out to more than 10% a year. A very profitable return with no risk.

Nothing is stopping you from working past the legal retirement age. These extra years of working will not only generate extra years of salary-based income but will also continue to increase your total insurance contributions.

Cons

Deferring your state pension will mean less money upfront. If you are in need of the extra cash, then you will not be able to reap the rewards of deferring your pension.


Work Pension

Workplace pensions are schemes run by your employer. Your contribution is directly relative to your salary, and you get tax relief of 20% on your contributions.

Pros

You are in control of how much money you’ll have to play with once you decide to retire. Your employer also contributes a little to the pot.

Cons

Opting into a workplace pension slightly reduces your take-home pay package.


Personal Pension

Personal pensions are a great option for those who don’t have the option of a company pension, perhaps because they are self-employed. You can receive a fixed personal pension pot when you retire, spent it on an annuity or to go into income drawdown. This is given alongside a state pension.

Pros

Ideal for those who don’t belong to workplace pensions, for example the self-employed or those who take time off work to care for children or relatives.

Personal pensions offer 20% tax relief if you’re a basic-rate taxpayer.

Cons

Personal pensions don’t have the bonus of extra money contributed by an employer and may charge higher management fees.

5 steps to take before you retire


1. Run the numbers

First thing is to determine where you stand with your finances. Think about: how much money do you make now? How much money do you have saved? How much longer do you plan to work for? Do you plan on switching jobs? What age do you wish to retire at?

After you find out where you stand with your finances you should ask yourself some important questions regarding your post-retirement lifestyle. It is important to note that typically retired people spend about a ¾ of their current income.

Ask yourself questions like: what do you plan to do after retirement, does it involve expensive travel plans or new hobbies, moving to a retirement home, abroad or in with your children. Will you have higher health care expenses, or require live-in care? Do you have to pay of tuition fees, car loans or a mortgage? Do you plan to give large gifts to your friends and family?

Once you have answered all of the questions above you should now have an educated estimate for how much post-retirement life will cost you.

2. Medical Expenses

Basic NHS healthcare covers you through your entire working career and even post-retirement. However, your main medical concern as you age is paying for additional services not covered by the NHS. It is important to note that although many non-medical services are now being included in NHS, some like live-in carers and other types of support must be self funded.

3. National Insurance

For your entire working career, the government required you to pay into National Insurance. National insurance will definitely help subsidise the loss of your salary but will not act as a total replacement. Your post-retirement goals will dictate how much extra money you need to save.

4. Check your Debt

Debt is a frightening topic. However, leveraging money and accumulating debt is just a part of life. Whether your debt is from student loans, buying a car, or a mortgage on a house, it should be your main priority to focus on paying off your debt before you start saving money for retirement. Debt can easily grow out of hand if you do not manage it properly.

5. Stick to your plan

You work hard for your money and your money should work hard for you. After you have devised your master plan for a successful retirement it is of utmost importance to stick with it. Failing to reach the standards you set for yourself or simply being lazy can set you back years and cost you thousands of pounds. However, it is always a good idea to reevaluate your plan and make necessary changes accordingly.

Retirement tips

Important things to note.

Don't worry

It is always recommended to get financial advice especially when dealing with something as important as retirement. Planning for retirement takes years and years of work and patience, but doesn’t have to be scary! You don’t have to go through it alone.

Own up to your situation

Whether good or bad you should know exactly where you stand with your finances. It is not going to help anything if you shy away from taking the time to understand your financial situation.

Get started early

It is never too early to start thinking about retirement, and it is definitely never too early to start actually saving for it. Invested money has a compounding factor which significantly increases the longer it's invested for.

Better to over plan

You can’t predict the future. Retirement is not a fixed amount of time, so you should always try to save more money than what is expected.

Have a plan and stick to it

Step one is to create a retirement plan. Step two (the harder step) is to stick to it. Saving for retirement can quite literally take a lifetime, from your first day of work until your last. Persistence is key to seeing your efforts pay off in the long run.

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FAQ's

Everything you need to know about pensions and retirement

First, the three top things to decide are - how you want to retire, how you want to be paid and research the best deal on buying an annuity to give you a regular payment.

The older you are when you take a pension, the higher the pay-outs because your life expectancy is shorter.

Different providers offer different options for receiving your pension. These include taking part or all of your pension as a lump sum, getting regular payments, and investing the money into a fund you can withdraw from.

You don’t have to stick with the same provider! You are able to transfer to another provider who may give you better options.

Providers take many things into account when calculating your pension, including your age and gender, the size of your pension pot, interest rates and your health.

You pay tax on any income that you receive above your tax-free personal allowance.

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