By Tony Watts OBE, Director www.retireeasy.co.uk
A report from Aegon hit the headlines recently, telling us that the average pension pot has almost doubled in the last couple of years.
That’s great news – except that we are starting from a ludicrously low base. The average figure is now a titchy £50,000 – enough, if invested in an annuity, to yield around £2,500 a year. That’s just £50 a week.
Even more worrying is the gender gap: men have put aside far more than their female counterparts – £73,600 compared with a mere £24,900. Women are also far more likely to have missed contributing years to their State Pension.
Averages, of course, are just that. And one fifth of people are believed to be heading into retirement with nothing at all behind them, while a goodly number are sailing in that direction with solid savings and quite possibly a company pension to look forward to.
But what these figures should do is focus of the minds of everyone in the latter years of working. Just how much will you need to live comfortably in retirement – and how can you squeak up what you have got in those last few years of employment or self employment?
Do you need to stay in employment longer than you had planned to ensure you have enough tucked away?
Answering the first part of that question is easy: key your assets and incomes into the free RetireEasy LifePlan, tell it how much you think you need a year in retirement, and it will immediately tell you if you are on the right track, need to save more, or even if you can relax and spend more and/or save less.
Ensuring you have maximised your private pension income can be more complicated, and a financial advisor may well be needed – especially in the wake of pension freedoms.
But there are several quick fire ways to pick the “lowest hanging fruit” offered by the State Pension, courtesy of Government websites.
As someone on the cusp of State Pension age myself, this has been something of a personal cause for concern – not least because I have spent most of my life being self-employed. So I set off to see just how the land lies – and several things I learned along the way might just prove useful to some readers.
Firstly, have you got a “lost pension” that you’ve forgotten all about? Many of us have worked for a variety of people in our lifetimes, and – especially in our early working lives – were probably not even taking notice of whether or not we had a company pension.
There is an incredibly helpful free “Pension Tracing Service” which will find out who currently operates the pension fund for your former employers. Many companies may have gone out of business or been taken over… but the pension fund may still be intact. Go to: https://www.gov.uk/find-pension-contact-details
On applying, it turned out that I did have a modest pension due from a company I worked for a couple of years way back in the 70s – a few hundred pounds a month I had not been expecting and which will come in very handy.
For those with a comfortable private income, the State Pension is often seen as a side issue – a maximum of around £7,500 under the new rules. But it’s a solid source of income for many of us and, if you haven’t paid enough contributions, could even prove to be very useful place to tuck away any spare savings you have.
The rules have changed significantly in the last year or so because of the introduction of the flat rate pension: while the total amount you can receive is now more, they have absorbed SERPS payments and increased the number of years you need to contribute to 35.
If you haven’t checked recently what you can expect to receive, it’s well worth doing so.
This Government website does it all for you – https://www.gov.uk/check-state-pension – letting you know you exactly when you can receive your State Pension, how many years you have contributed and how much to expect when you do retire.
Critically, if (like me) you are short of contributing years, it tells you how much you need to pay in order to receive the maximum amount, and by when. For around £700 to make up for each year I’d missed, I found I could add around £4 a week (£200 a year) to my income. Now that’s a return on investment.
Moreover, I didn’t have to do it by State Retirement Age: I plan to work for a few more years yet and can keep adding contributions along the way to build up my State Pension.
Some of you – including many women who took time out to raise a family – may well be due NI credits, so you don’t even have to pay to make up some years. You can find out more about that here: https://www.gov.uk/national-insurance-credits/eligibility
So, a few quick ways there to boost your income in retirement. And one very good way – using the free LifePlan at www.retireeasy.co.uk – to make sure your retirement is as secure and enjoyable as it possibly can be.