If you are counting down the days, weeks, months and years until your retirement day, you may want to reconsider taking early retirement. Working into your 70’s can bring many benefits to you personally. Mental and potentially physical happiness, as well as extra income you can invest in your pension.
The current average life expectancy for men is 79 years and women is 82*. If you retire at state pension age of 67, you could be retired for around 15 years on average. But as the years pass, medical enhancements and peoples improving health could increase life expectancy in the UK. Will your retirement funds last for potentially 20 years or more?
Whether you decide to keep working as usual for as long as you can, work part-time or retire gradually, our five reasons why delaying your pension could be a good idea.
As mentioned previously, people in the UK are living longer, and will your retirement funds last 20 years+? According to Royal London’s research in 2018, people need to aim for pension savings of around £260,000~ to enjoy a comfortable retirement.
With £260,000 pension value and lasting for 20 years, this would equate to £13,000 a year (just over £250 a week). By adding a full state pension (currently worth just over £168 a week) this could mean an income of around £420 before any potential income tax deductions, things could be pretty tight. If you can continue working, even part-time or reduced hours could help massively in the long-term and with your pension savings.
The longer your personal pension remains invested, the more opportunity it has to grow. But, as with all investments, the value of your pension pot can go down as well as up. It’s worth checking your pension schemes risk profile to negate as much risk as possible while still enjoying growth. Also, compound interest accumulates over-time and even an extra year or two can make a big difference to your final pension pot.
When you come to retire, pension drawdown could be a consideration. Since pension freedoms, drawdown allows you to take lump sums out of your pension while leaving the rest invested, so potentially allowing it to continue growing even though you are retired.
If you continue working full-time, your employer will usually be required to keep up their pension contribution. Currently, the minimum auto-enrolment contribution is 5% of your wages, plus 3% from your employer, which over a year could boost your pension fund by £000s.
If you keep paying the minimum amount into your pension, in addition to employer contributions you’ll also continue to receive tax relief from the government. If you’re a basic income tax-rate payer, every £100 invested into your personal pension by your employer, the tax-office will top-up the contributions by another £25 through tax relief.
If you are thinking about inheritance and your pension pot has remained untouched, your pension savings could be passed on tax-free. If you die before age 75, your untouched retirement funds can pass tax-free to any nominated beneficiary. The money is paid within two years of the pension provider becoming aware of your death. If the two-year limit has passed, the funds will be added to the beneficiary’s other income and taxed at the appropriate income-tax rate(s).
If you die after 75 years old and your nominated beneficiary takes the money as income or as a lump sum payment, they’ll pay income-tax at their appropriate rate(s).
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be taken as financial advice.
For independent pension advice, speak to one of our advisers today on 0808 164 2664 or click here for more about retirement planning. If you live locally, in Knutsford, feel free to visit our offices in Booths Park and meet your adviser.
*bbc.co.uk, Life expectancy progress in UK ‘stops for first time’ Sept 2018
~telegraph.co.uk, Average pension pot in UK: What is a good pension pot? May 2019
This can be found on your payslip, P60 document or letters about tax, pensions or social benefits.
If you have (or have had) a pension that is described below then we can potentially carry-out a Pension HealthCheck.
Defined Contribution Pensions
These are ‘Pot of Money’ pensions where the benefits provided take into account the value of the fund at retirement. They can be personal pensions or Occupational Pensions. There are no guarantees as to what pension will be provided. This will be a reflection of contributions made and investment growth.
Defined Benefit Pensions
These offer the promise of a guaranteed pension at retirement which reflects the length of service with an employer. It will be based on either the Final Salary or Average Career Salary of the employee. Providing the company is still in existence, there is no investment risk for the pension receiver. This type of pension is becoming less frequent.
This is a generic term for pensions that are not workplace schemes.
Group Personal Pensions
Employer-sponsored schemes – each member has a personal pension plan, and their contract is with the pension provider. The employer’s role solely is to select the scheme provider, decide if there should be any restrictions on fund choices and take contributions from the employee’s pay and forward them with employer contributions to the pension provider.
A private pension arrangement or personal pension is taken out by a sole-trader or self-employed worker.
State Earnings Related Pension (formerly Graduated Pension and subsequently State 2nd Pension or S2P) was an additional element of State Pension for employees. The amount of pension was linked to the employee’s salary. SERPS was abolished in 2016 when the flat rate State Pension was introduced.
Private pensions are contracts between the pension member and an insurance company or another pension provider.
These are personal pensions where the member has a much wider choice of investments, including commercial property and single company shares.
Personal Pensions with a set of rules that impose amongst other things a maximum annual management charge (AMC), low minimum contribution levels (£20 per month) and an appropriate Default fund.
Private pension linked to an employer’s Defined Benefit Scheme but separate from the Scheme’s internal Additional Voluntary Contribution (AVC) arrangement – largely defunct since the rules were eased several years ago, allowing people to contribute to both personal and employment schemes as they wish.
Money Purchase Pensions
This is another name for Defined Contribution Pensions.
Unfortunately, we are unable to help clients who currently work for or have a pension from one of the following:
If you are unsure about the type of pension(s) you hold, please contact us on 0800 756 1288 or email email@example.com