As you start to plan for the future and think about retirement, your financial position becomes more important. If you have paid into a workplace pension, you’ll have both that and your state pension (if you’re eligible) to draw from. But will this be sufficient to meet your needs for a comfortable retirement? If not, what steps should you take, and when, to ensure you’re not left short? We discuss all of this in this short article.
Understanding the state pension in the UK
The state pension is a regular payment from the government that you can claim when you reach state pension age. In 2024, this is 66 years of age, for both men and women. Your eligibility for state pension is based on your National Insurance contribution record. You must have at least 10 qualifying years of National Insurance contributions to be eligible. For a full state pension, you must have 35 years of National Insurance contributions. The purpose of the state pension is to give a baseline of financial security for you in retirement. The State Pension is currently protected by the Pension Triple Lock. This protects the state pension from inflation. It guarantees that each year in April, the pension will rise by the highest of three factors (determined the previous November):
- The level of inflation (as determined by the Consumer Prices Index) the previous September
- The average increase in earnings the previous July
- 5%
As of April 2024, the full state pension amounts to £221.20 per week. For many, this is significantly lower than their salary had been when working. There is therefore a need for additional income in retirement, for example through workplace pensions or other private pensions.
Understanding workplace pensions
In 2012, auto-enrolment for workplace pensions was brought in by the government. Those eligible for auto-enrolment will be enrolled in their employer’s chosen pension scheme. A portion of their earnings will be contributed to their pension, along with a contribution from the employer. The minimum total contribution to a workplace pension is currently 8% of your earnings (including tax relief and employer contributions). The amount that you’ll be able to draw from your workplace pension on retirement will differ from person to person. It will depend on the level of contributions and how long you have been part of the scheme. The scheme itself will make a difference too. The level of investment growth and pension scheme charges will impact payment values.
Will these pensions be enough?
Whether the state and workplace pensions will provide sufficient funding for your retirement plans depends on many factors. Your cost of living is a big factor. Whilst some of your expenses may diminish in retirement, for example commuting expenses, others may increase. It’s also important to consider the kind of retirement you’re planning for. Plans to travel or the pursuing of expensive hobbies will require more available funds. On average in the UK, we’re living longer than we have done previously. This means that your pension funds may need to last longer than before, or you may not be able to retire when you planned to.
How can you enhance your retirement savings?
If, after consideration, you don’t believe your state and workplace pensions will be sufficient, don’t worry! Acting now may ease the financial pressures in years to come. Firstly, you can enquire with your employer about increasing your contribution to your workplace pension. You can also opt to open a private pension. Engage with a financial expert, such as the team at Willday Wealth Management. We will ensure the money you invest in a private pension is working hard for you, to allow you to meet your financial goals.
Along with delaying your retirement date, you may choose to continuing working in a part-time capacity after retirement. This will supplement your pension income with a salary. Remember, though, that income tax must still be paid, even when retired, should your income pass the threshold.
It’s true that the state pension provides a base level of income for you on retirement. It’s also true that the introduction of auto-enrolment is ensuring more people have additional funds available to them in retirement. However with the increasing life expectancy of the UK population, this may still not be enough. There is also no guarantee that by the time of your retirement there is a state pension at all.
Planning for your retirement and taking time to assess your financial position and needs will stand you in the best stead for retirement. It gives you the best opportunity to adapt your plans, or your saving strategy whilst you still have time to make a difference. Good planning is crucial to ensure that you can enjoy your later years with peace of mind and financial security. Take charge of your financial future today by opening a Private Pension with us, ensuring peace of mind for your later years.
