Pension & retirement
James Wallace
When it comes to planning for retirement, the earlier you start, the better. But the reality is that many of us, especially those in our 20s and early 30s, don’t always prioritise saving for the future. Instead, we’re focused on the present—career progression and enjoying life. However, those who are committed every step of the way will reap the greatest rewards down the line.
Starting with small steps in retirement planning now can make your financial journey smoother as you approach retirement.. As the retirement savings journey often spans several decades, it can be helpful to separate your plan into stages.
This will help you achieve the right blend of enjoying the present and funding your future.
The general recommendation is to save at least 15% of your income towards retirement. However, the amount you should contribute depends on your personal circumstances and retirement goals. Starting with smaller contributions is okay, but aim to increase your contributions as your income grows.
Let’s explore the different stages of life and how retirement planning fits in.
At this age, retirement may feel a long way off, but that’s exactly why it’s the perfect time to start. In your 20s and early 30s, you are likely to have fewer financial responsibilities than in later years, and this can work to your advantage. While retirement saving might not seem urgent, building a solid foundation early on will make a huge difference in later life.
The best time to start saving for a pension is when you’re young, as this gives your money more time to grow. Delaying contributions by even a few years can significantly reduce your final pension pot.
It’s estimated that postponing pension savings until middle age could mean missing out on up to £100,000 in investment returns and tax relief.
Fortunately, as soon as you begin working, you’ll typically be enrolled in your employer’s pension scheme automatically. By law, if you contribute 5% of your salary, your employer must add at least 3%.
Making the most of this scheme is essential for building a comfortable retirement fund. The earlier you start, the greater the benefits of compound growth over time.
Self-employed individuals don’t have access to workplace pensions, making personal retirement savings essential. Options like Self-Invested Personal Pensions (SIPPs), stakeholder pensions, and ISAs can provide tax-efficient ways to save.
Since income can fluctuate, setting up flexible contributions and using high-earning periods to boost pension savings can help ensure financial security. It’s also vital to check National Insurance contributions to qualify for the full State Pension, as self-employed workers must actively manage their contributions.
When deciding how to invest your pension, a long-term approach is key. Choosing assets with strong growth potential—such as stocks and shares—can help maximise returns. While investments can fluctuate in value, a longer investment horizon allows you to ride out market ups and downs.
A Self-Invested Personal Pension (SIPP) gives you more control over how your pension pot is invested. Unlike traditional pension plans, which have a limited range of investment options, a SIPP lets you choose from a wider variety of assets, including stocks, bonds, and property. If you’re confident in your investment knowledge or want more flexibility, a SIPP could be a good choice.
When you’re young, you have time on your side, which allows you to take more investment risks and benefit from the growth potential of the markets. Even though markets go up and down, you have decades before retirement, so short-term volatility tends to smooth out in the long run.
It’s essential to focus on your future during this phase, even if it feels distant.
Many young people receive financial gifts from parents or grandparents, often intended for long-term savings or investments. While these gifts can provide a valuable boost to retirement savings, they should be managed carefully.
Instead of spending them immediately, consider investing them in a pension, stocks & shares ISA, or other tax-efficient savings vehicles to maximise growth over time. Additionally, family gifts may have inheritance tax (IHT) implications if the giver passes away within seven years, so seeking financial advice on how best to structure these contributions can be beneficial.
Financial responsibilities tend to pile up by your mid-30s, with mortgage payments and childcare costs becoming major expenses.
On the plus side, career progression often leads to higher earnings, making it a great time to focus on retirement savings.
By now, your income has likely increased. Perhaps you’re further along in your career, maybe starting or have a family, and you may have more financial flexibility. With this increased earning power, it’s the ideal time to review your retirement plans and consider ramping up your contributions.
If you earn more than £50,270 a year, you can benefit from 40% tax relief on pension contributions. This means that for every £100 you invest in your pension, the actual cost to you is just £60. When combined with employer contributions, this presents a powerful opportunity to grow your savings.
By the time you reach your mid-40s, it’s crucial to assess whether your pension savings align with your retirement goals. You may have a clearer idea of the income you’ll need and the age at which you’d like to stop working, allowing you to fine-tune your savings strategy accordingly.
If you haven’t already, it’s time to speak with a financial adviser. Retirement is becoming more real, and a professional can help you understand exactly how much you need to save and at what age you would like to retire. A financial adviser can also help ensure that your retirement savings are aligned with your personal goals and provide insight into the best investment strategies.
Now is the time to make some important adjustments:
Consolidate Your Plans: If you have multiple pension pots, consider consolidating them into one plan. This will help simplify your retirement strategy and potentially reduce fees.
Maximise Contributions: Aim to contribute more than the minimum required. If you’re able, topping up your pension with extra contributions will make a significant difference when you retire.
Update Your Beneficiaries: Ensure that the beneficiaries listed on your pension plans are up to date. This is particularly important if your life circumstances have changed, such as marriage or the birth of children.
Consider Bonus or Salary Sacrifice: Some employers allow you to sacrifice a portion of your salary or bonus for pension contributions, giving you more flexibility and tax advantages.
Use Your ISA Allowance: Don’t forget about Individual Savings Accounts (ISAs). Using your ISA allowance each year provides additional tax advantages and flexibility.
By the time you turn 50, your focus on retirement savings should be sharper than ever—this is the stage to make significant progress toward your goals.
If your pension pot isn’t where you’d like it to be, don’t panic—you still have time to make a meaningful impact.
At this stage, many financial commitments begin to ease. You may be approaching the final years of your mortgage, and other expenses could start to decline. Meanwhile, earnings often peak in your 50s, creating the perfect opportunity to accelerate your retirement savings—especially if you need to catch up.
If you have spare cash in the bank that you don’t need immediate access to, consider boosting your pension through lump-sum contributions. The maximum you can contribute in a year while receiving tax relief is 100% of your earnings or £60,000, whichever is lower—this is known as your annual allowance.
Additionally, you may be able to contribute even more using the “carry forward” rule, which lets you use unused allowance from the previous three tax years.
As you approach 65, your retirement plans should be taking shape, with a clear understanding of the final steps needed to achieve your target income. Having a well-defined plan will make decision-making much smoother when the time comes to transition into retirement.
At this stage, you should be looking at the big picture and considering all the ways you can maximise your pension and savings before retirement. This could include consulting with a financial adviser to review your retirement strategy in detail.
Here are some key steps to take as you near retirement:
Conduct a Pre-Retirement Review: Work with your financial adviser to conduct a full review of your pension plan, including how your benefits can be taken and how your finances will look post-retirement.
Consider SIPPs: A Self-Invested Personal Pension (SIPP) may be an option to give you more control over your pension investments. A SIPP lets you choose how your pension is invested, which could potentially help you boost your retirement income.
Understand Your Pension Options: The rules around pensions are changing, and now that you’re getting closer to retirement, it’s important to understand how you can take your pension benefits. For example, you can start accessing your pension savings at age 55, but you should understand the different ways to draw your pension—whether that’s through lump sum payments, income drawdown, or purchasing an annuity.
State Pension Forecast: Make sure you know how much you can expect from the state pension and whether you’re on track to receive it at the right time.
You might be wondering, “Can I withdraw my pension before 55?” The answer is generally no, unless you meet certain conditions such as ill health or specific pension schemes. While some people may consider early pension release, this is a complex issue and should be explored with a financial adviser to understand the long-term impact on your retirement funds.
Changes in employment, such as moving to part-time work or switching jobs, can impact your pension contributions and long-term retirement strategy. When changing jobs, it’s important to track and consolidate pension pots, ensuring your savings continue growing efficiently. If transitioning to part-time work, consider adjusting your savings strategy to maintain financial stability. Career breaks can also affect your National Insurance record, so checking contributions and making voluntary payments can help protect your State Pension entitlement.
Death Benefits: Understanding how your pension can pass to your beneficiaries is important for inheritance planning. You can use death benefit options to save on inheritance tax.
ISA Allowance: Continuing to use your ISA allowance is essential for flexibility in how you draw funds during retirement.
Investment Strategy: Review your investments carefully. You might want to shift toward lower-risk options as you get closer to retirement to preserve the value of your pension fund.
At this stage, your focus should shift from growing your wealth to ensuring it provides a steady income for the rest of your life.
Your primary goal is to make your retirement savings last, balancing security with flexibility. When it comes to drawing an income from your pension, you generally have two main options:
Choosing between these options requires careful consideration, as each has its advantages and drawbacks. With income drawdown, you have the freedom to access your money when needed, but there’s a risk of running out of funds. An annuity, on the other hand, provides financial security but is irreversible and leaves no remaining capital for inheritance.
However, you don’t have to pick just one. Many retirees opt for a mix of guaranteed and flexible income, striking a balance between security and control.
Once you reach State Pension age (66, rising to 67 from 2028), you may also qualify for the full new State Pension, provided you have sufficient National Insurance contributions. At £203.85 per week, this can provide a valuable boost to your retirement income.
Retirement planning is a lifelong journey, and it’s important to stay focused on the long term. By starting early, increasing contributions over time, and consulting with professionals, you can ensure that your retirement years are comfortable and financially secure.
Whether you’re just starting out in your career or approaching retirement, making smart decisions about saving and investing now can set you up for success in the years to come. Start today, and let your future self, thank you for it!
It’s never too early to start! The earlier you begin saving for retirement, the better. Even if you’re in your 20s or 30s and feel retirement is far off, starting early allows you to benefit from compounding and gives you the flexibility to take more investment risks. The earlier you set up a pension and start contributing, the more time your money has to grow.
In most cases, you cannot access your pension before age 55 unless you meet specific conditions, such as ill health. Early pension release is generally not an option unless you are in one of these circumstances. It’s crucial to plan your pension withdrawals with care, as early access could reduce your pension pot when you need it most.
In your 20s and 30s, it’s essential to start contributing regularly to your pension plan, even if you can’t afford to make large contributions. Setting up a direct debit or salary deduction is a good way to ensure regular savings. If your employer offers a pension scheme, contribute enough to take full advantage of any matching contributions they offer, as this is effectively free money.
The general recommendation is to save at least 15% of your income towards retirement. However, the amount you should contribute depends on your personal circumstances and retirement goals. Starting with smaller contributions is okay, but aim to increase your contributions as your income grows.
A Self-Invested Personal Pension (SIPP) gives you more control over how your pension pot is invested. Unlike traditional pension plans, which have a limited range of investment options, a SIPP lets you choose from a wider variety of assets, including stocks, bonds, and property. If you’re confident in your investment knowledge or want more flexibility, a SIPP could be a good choice.
In most cases, you can access your pension savings from the age of 55. This could include taking a lump sum, income drawdown, or purchasing an annuity. However, taking funds early means you could reduce your retirement income in the long term, so it’s important to plan carefully with a financial adviser.
It’s essential to ensure your pension plan has up-to-date beneficiaries listed. This will make sure your pension pot is passed on to the people you want in the event of your death. Many pension schemes also allow you to specify how death benefits are paid, which could be used for inheritance tax planning.
If you change jobs, your pension from your previous employer doesn’t go away. You can leave it where it is, transfer it to your new employer’s pension scheme, or move it to a personal pension plan. It’s important to keep track of any pension pots you have from previous jobs to ensure they are well-managed and continue to grow.
Yes, you are entitled to a state pension when you reach the state pension age, which is currently 66 but will rise over time. The amount you receive depends on your National Insurance contributions throughout your working life. You can request a state pension forecast from the government to see how much you’re likely to receive.
There are several ways to boost your retirement savings, including:
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THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
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