With research suggesting that 80% of British adults underestimate their projected life expectancy and nearly 15 million people thought to have no private pension savings at all, Acumen asks “Are you ready for retirement?” In this article, we look at three ‘at risk’ groups of pension savers – the over 50s, self-employed and stay at home mothers – and provide some tips that can be actioned immediately.
Average life expectancy in Britain is now 88 years for men and 90 for women. With the State Pension age set to rise to 66 by 2020, UK workers need enough banked capital to be able to live comfortably for more than 20 years beyond their retirement date. For some groups of workers, this might sound like an unachievable target. However, with a few adjustments, a golden retirement is within reach for all.
The Financial Conduct Authority (FCA) has found that around 15 million people have no pension savings and are facing a frugal retirement. In the largest survey of its kind, the FCA’s poll revealed that 31% of adults in the UK will be fully reliant on the State Pension. Even then, only those who have accrued 35 years’ worth of National Insurance contributions will be eligible for the full £159.55 a week.
The most at risk group are over 50s who are not actively saving for retirement. Of the over 50s quizzed by the FCA, just under a third (32%) admitted making no extra contributions to their pension because they felt it was ‘too late’ to set one up. As many as 26% claimed that they could not afford the fees and 12% admitted that they would be totally reliant on their partner’s pension income.
Just 12% of the current 4.8 million self-employed workers in the UK are saving for retirement, according to the FTAdviser. The Conservative government pledged to roll out auto-enrolment for the self-employed as part of their 2017 election manifesto. Parliamentary Under-Secretary For Pensions and Financial Inclusion, Guy Opperman, told New Model Adviser: ‘Well there is nothing to stop someone who is self-employed from getting their own private pension today, and, while we definitely want to help them going forward, I would urge them to do that in any event.”
“But we are very much committed to the manifesto and to ensuring that the over four million people who are self-employed have the opportunity to have a pension,” he added. One solution offered by Aviva and Royal London is for auto-enrolment to be calculated using Self Assessment tax returns. Former Pensions Minister and now Policy Director at Royal London, Steve Webb, suggested an optional 4% net (plus tax relief from the government) could be added to self-starters’ tax calculations and then allocated to a pension fund of their choice but at the moment it is left entirely to the individual to sort it out for themselves.
Stay at home mothers
Saving for retirement as a stay at home mum is fraught with difficulty, especially given that the average State Pension currently only delivers around £8,000 a year if the pre-requisite 35 years of National Insurance credits have been amassed. All is not lost, however, because even away from the workplace your years as a parent can still allow you to qualify towards a state pension. As long your eldest child is under 12, you can still receive National Insurance credits but you must be registered for Child Benefit so as to qualify for those all-important NI contributions.
This is a potential problem for those mums whose partners earn over £50,000 a year as they often believe that as the Child Benefit is clawed back via tax for those higher earners, that there is no point in claiming it. They are wrong. It is essential to claim Child Benefit so as to pick up those valuable NI credits and maintain eligibility for the State Pension.
Beyond that point, you are still left with the problem of how to accumulate the rest of those 35 credits to receive your State Pension and to top it up with additional pension funding. If you are in a workplace pension scheme, we recommend trying to stay in it if at all possible. If your workplace offers a group personal pension, you might be able to carry on contributing and increase your pension amount. If this isn’t possible, your employer is required to pay into a pension fund for the duration of your maternity leave.
Start your financial planning for retirement today
No matter where you are on the career continuum, it is never too late to start your financial planning for retirement. There are numerous actions you can take that can help boost your pension savings forecast. Here are three quick and easy tips to get you started:
1. Plan a retirement strategy
All UK workers should formulate a retirement strategy, otherwise there is no way of telling how you should save. Your plan should include the three stages of saving: aggressive accumulation throughout your career; the continued growth of assets during semi-retirement; and accumulated assets during final retirement when earned income ceases.
2. Maximise your tax breaks
Minimising the tax you pay in retirement is crucial. It is worth bearing in mind that 25% of your pension fund up to the Lifetime Allowance can be withdrawn tax-free. Therefore, combining your income from a taxable source like a pension with tax-free income from an ISA can help maximise your personal allowances and basic-rate income tax band. This can enable you to avoid higher and sometimes even basic-rate tax.
3. Locate old pensions
The Pensions Policy Institute (PPI) estimates that there are 1.6 million lost or unclaimed pension pots in the UK today, worth a reported £19.4 billion. If you’d like to locate an old pension you can use the government’s Pension Tracing Service. It might be beneficial to merge your pensions into one scheme or bring them under a single investment wrap service. However, you should always speak to a financial adviser first to discuss your options.
Contact Acumen for pension advice
According to research by Old Mutual Wealth’s, retirees who have seen a financial adviser, even just once, receive £7,000 more on average for each year in retirement. The better prepared you are, the better off you will be. At Acumen, we have the expertise and knowledge to support every aspect of your retirement planning.