How can you stop your pension running out?


Do you know how much the current State Pension is?

It must be enough to live on, surely?

It is often reported that people are ill-prepared for their retirement, and for good reason. Research from Scottish Widows suggests that nearly one in five of us aren’t saving enough into a pension. Many are increasingly relying on the State Pension to fund their retirement, but this is a risky plan. It was announced in July that the State Pension Age will increase seven years early, affecting over seven million people.

Taking control of your retirement planning has never been more important, as people continue to save less and live longer. But how exactly can you ensure that you have enough to sustain your lifestyle in retirement?

First things first

The current full State Pension is £159.55 per week (10 points for anybody who guessed it correctly). This works out to an annual income of £8,300, which is a solid foundation, but probably not enough to live on. It is estimated that two million pensioners rely on just the State Pension for income, roughly one in seven people.

The State Pension Age is currently at 65 for men and women, but will increase to:

  • 66 by 2020
  • 67 by 2028
  • 68 by 2046

The State Pension is available to anybody who has enough qualifying years. This means that National Insurance Contributions (NICs) have to be paid in for a total of 35 years. Any gaps can be filled by making voluntary contributions, and a report of exactly how many years you have accrued can be accessed here.

How can I save money for my retirement?

It is unlikely that you will be able to live on the State Pension alone, so you will need to make some further provisions.

If you are eligible, a workplace pension can be an effective tool when saving for your future as three parties pay into it:

  • You
  • Your employer
  • The Government

By the 1st of February 2018, any employee who is over 22 and earning a salary of over £10,000 will automatically be enrolled into a workplace pension. Starting to save early on in your career will put you in a much stronger position when the time comes to retire, and those eligible for a workplace pension will benefit from the added benefit of both their employer and the Government paying in as well.

Since auto-enrolment was introduced in 2012, the number of people saving adequately has risen from 46% to 56%. Whilst this is promising news, one in five UK adults are still not saving anything into a pension according to Scottish Widows. The under-30 age group is the least prepared with 70% not saving adequately.

Pete Glancy, Head of Policy Development at Scottish Widows, commented: “There is no doubt auto-enrolment has been a success in kick-starting the savings habit for millions – but it is not a silver bullet. Auto-enrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement. For many, particularly those only making the minimum contribution, that is simply not the case given retirement is looking more expensive, and longer, than ever. We want the Government to take the opportunity with the auto-enrolment review to make some rule changes to help people save more.”

How can I boost my pension pot?

For those that don’t have access to a workplace pension, or those that need to boost their income, there are a number of things that you can do. Whether paying into a workplace pension or a personal pension, taking control of your retirement planning now could be the difference between earning the income to afford the lifestyle you always wanted and not having enough to meet your basic needs.

Work longer, if possible

This may not be physically possible for some, but the benefits of working past retirement age could be huge. Many people are choosing to work longer, either full-time or with reduced hours, for a myriad of reasons beyond increasing their income, including:

  • Socialising with people
  • Having a purpose
  • To avoid boredom

Research from Aegon shows that on average, working until 70 increases a pension pot by 44%.

Delaying your retirement is one way of boosting your income when you stop working, however, it isn’t the only method. Many people physically can’t work until they are 70, so what other ways are there to take control of your retirement planning?

Increasing your contributions

Increasing the amount that you pay into your pension not only boosts your pot, but the contributions will benefit from tax relief. This means that it will cost £80 for a basic-rate taxpayer to put £100 into a pension, and £60 for a higher-rate taxpayer.

However, there are limits to how much you can pay in:

  • 100% of your earnings, subject to the annual allowance cap of £40,000
  • Non taxpayers can pay in a maximum of £3,600 per year

The more you know

In its 13th annual Retirement Report, Scottish Widows states that the main reasons people aren’t saving enough could be solved by raising awareness. For example, many people are being lulled into a false sense of security with the minimum contributions for workplace pensions. Currently, the minimum contribution is 0.8% of your qualifying earnings, with the employer paying 1% and the Government paying 0.2%. Scottish Widows argues that this leads people to believe that paying the minimum is enough, when in actual fact the recommended amount is 12%.

Awareness is important when it comes to taking control of your retirement planning, and knowing how your saving habits will affect your future may cause you to act differently. A professional financial adviser will be able to help you plan your future, and ensure that you aren’t one of the two million pensioners who don’t receive anything more than the basic State Pension.

If you have any questions about the State Pension, or making the most of your retirement income, don’t hesitate to get in touch by calling the number at the top of the page.