finance

State pension warning as Brits told sum ‘won’t be enough’ for retirement – how to boost your pot


BRITS are being warned the state pension “won’t be enough” to get by financially in retirement.

The state pension is a regular payment most people claim when they reach a certain age in later life.

Brits are being warned the state pension "won't be enough" to get by financially in retirement.

2

Brits are being warned the state pension “won’t be enough” to get by financially in retirement.Credit: Alamy

It’s different to your workplace or a private pension, with the time you can apply for it depending on when you were born.

Although the weekly sum is forecast to rise above £200 a week in 2025, Brits are being urged to boost their retirement savings.

The new state pension is already set to rise by 2.5% from April, meaning it’ll rise by £4.40 a week to £179.60 – a hike of £228.80 over the year.

Meanwhile, the old basic state pension will increase by £3.40 a week to £137.65 – giving pensioners an extra £176.80 over 12 months.

What are the different types of pensions?

WE round up the main types of pension and how they differ:

  • Personal pension or self-invested personal pension (SIPP) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
  • Workplace pension – The Government has made it compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% and employers contributing 3%. This is up from the 5% of contributions workers and companies were required to pay in previously, where employees contributed 3% and employers 2%.
  • Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year on retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension.
  • New state pension – This is what the state pays to those who reach state pension age after April 6 2016. You’ll need 35 years of national insurance contributions to get this. You also need at least ten years’ worth of national insurance contributions to qualify.
  • Basic state pension – If you reached the state pension age on or before April 2016, you’ll get the basic state pension. You’ll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.

However, up to £179.60 a week (or £718.40 over four weeks) will leave you financially stretched in your golden years, according to experts.

Clare Julian, Wealth Manager at JM Finn, told the Express: “People should be under no illusion that [the state pension] is ever going to be enough for your life in retirement.

“The UK population is chronically underfunded, and I think people just don’t realise how much you’ll need in order to get the lifestyle you want or need in retirement.

“You’re going to be retired for a long time, life expectancy is on the up, and you really do need to take this into account.”

Meanwhile, Aviva has found people who only pay in the minimum amounts required into their workplace pensions may also fall short when it comes to a comfortable retirement.

And separate research has found that two thirds of employees aged 45 and over face poverty in old age unless they act soon.

How to boost your pension pot

Understand where you start

If your current pension pot is small, or doesn’t exist at all, you’ll first need to work out how much you need to save.

If you want a comfortable retirement, you’ll need to build up a pot of £587,116 per person – £355,856 if you’re in a couple, according to research.

This is if you want to turn your pension into an annuity, which pays you a guaranteed annual income for life in retirement.

An annuity isn’t always the right option for every in retirement – you could leave the cash invested or take out lump sums as and when you need to.

2

But if an annuity is right for you, trade body the Pensions and Lifetime Savings Association (PLSA) worked out how much you’d need to save to have the lifestyle you want in retirement.

For a comfortable retirement, the PLSA says you’d need to spend around £33,000 a year as a singleton or £47,500 as a couple.

This would mean you can enjoy some luxuries, such as regular beauty treatments, theatre trips and three weeks in Europe a year.

You could also afford a weekly food shop of £65 and could spend up to £150 a month on clothes and shoes.

And you’d also be able to afford proper home improvements with a kitchen or bathroom replacement every 10 or 15 years.

While, if you’re only aiming for the minimum then you need to spend £10,200 a year if you’re single or £19,200 as a couple.

You can check out more details on how much money the various lifestyle changes require here.

Join your employer’s workplace scheme

Since 2012, all staff aged between 22 and state pension age who earn more than £10,000 are automatically enrolled into a pension scheme by their employer.

So if you are employed, staying in the workplace pension scheme is the best way to help fill your retirement income gap.

There are minimum contributions that you and your employer must pay, and these are being gradually increased over time.

Since April this year, a minimum of 8% must be paid into the pension, with you contributing 5% and the employer paying at least 3%.

Your minimum contribution currently applies to anything you earn over £6,240.

By the mid-2020s, all workers, regardless of income, will be automatically enrolled into a workplace pension.

Maximise your contributions

If you’re already a member of a workplace scheme, boosting your contributions to it is another option.

Many employers match the contributions their employees pay, so if you pay more, they will do the same.

In fact, by boosting your monthly pension payments by 2.5% you could retire eight years early, according to an expert.

Set up your own personal pension

If you’re self-employed or not eligible to join a workplace pension scheme then you can set up your own personal pension plan.

The options here are an ordinary personal pension, a stakeholder pension (which have capped charges) or a self-invested personal pension (SIPP), where you usually have a a wider range of investment options but fees can be higher.

Just bear in that with most personal pensions you currently have to lock away the cash until you’re 55. This threshold will rise to 57 from 2028.

If you’re ok with this, you’ll need to look into the options to find out what’s best for your needs – for example, is there a minimum amount you can save each month?

Also compare fees and charges to ensure you’re getting the best deal – most pension providers will charge some kind of annual fee, whether that’s a percentage or set charge.

You can use a comparison tool, such as Money.co.uk to help look into your options.

Track down your pensions

We have an average of 11 jobs during our working lives, which makes it easy to lose track of employee pensions.

In fact, savers lose up to £300 a year from their pensions due to frequent job moves.

Personal pensions can also get lost when you move house, change your name or don’t update your personal details.

No wonder then that there is currently more than £5billion in forgotten pension schemes in the UK, according to the Pension Tracing Service.

But there are several ways you can track this money down – the Pension Tracing Service is free and you can start the process online.

You will then be sent documents which you need to sign in order for it to search on your behalf.

Or you could also try the government’s free pension tracing service.

Claim a state pension payout

Up to 200,000 women of retirement age may have been underpaid their state pension after the system failed to automatically give them a pay rise.

Last week, the Government finally agreed to repay the estimated £2.7billion worth of arrears.

It means on average, women pensioners could be owed a payout of £13,500, although the amount will vary.

Martin Lewis this week explained to viewers of his Martin Lewis Money Show that the error, which stretches back 30 years, affects married women and widows aged 67 and older.

Women who retired on small state pensions before April 2016 were supposed to see pension payments go up when their husbands reached retirement age.

Not everyone will receive an automatic payout, so it’s worth checking our guide about the issue and how to claim.

Get advice

If you need more help, it could be worth speaking to a regulated financial adviser who will go through your options and help you choose the best one for you.

You’ll have to pay for trouble, but advisers must go through their fees and charges with you before you commit.

You can find one using the Money Advice Service’s search tool.

Another option is to check with your employer as many offer sessions with financial advisers to help you plan for your future retirement.

Martin Lewis warns 200,000 women could be owed £13,500 pension payout





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.  Learn more