It can be hard to pay enough for retirement when you are buying a home and raising a family, but it’s never too late to give your pension pot a boost
How much do you think you will need to fund your retirement? Of course, the answer to that question will depend on what you want to do when you stop work – pottering in the garden is likely to need a bit less money than embarking on a round-the-world holiday. It will also depend on how long you expect to be retired – the earlier you stop work, and the better your health, the longer your pension is likely to have to last.
The Royal London report Pensions through the ages (2015) found that a single pensioner not dependent on the state pension spends roughly £14,000 a year. But the current state pension is only around £8,000, so most people would need to find another £6,000 a year to reach that standard of living. By using a simple calculator you can see that you’d need roughly £120,000 to generate that extra income.
Unfortunately, many of us struggle to put enough into our pension pot during our working lives because the costs of buying a house, raising a family and covering day-to-day living expenses eat into disposable income. But it is never too late to think about saving for retirement: even those who are planning to give up work in just a few years’ time can find ways to add to their nest egg.
The state pension offers a good base to build on. The new state pension gives £159.55 per week this year (2017/18), although only those who meet the National Insurance requirements will qualify for the full amount. As a rule of thumb, that means contributions must have been paid for at least 35 years, while those with gaps in their National Insurance Record – perhaps because of time spent abroad, or periods of self-employment on low earnings – may not get a full state pension.
Everyone who is approaching pension age should ask for a forecast and you can do this online. Those who are not heading for the full flat rate pension may be able to top up their national insurance record by making voluntary contributions. Start by requesting your National Insurance Record to establish whether it is possible to fill in the gaps.
The cost of topping up is subsidised by the government so it can be an efficient way to boost retirement income. The amount you will have to pay, and the periods for which you can make extra payments, will vary according to your individual record. At Royal London we’ve produced a useful booklet to explain the procedure.
The booklet, called Topping up your State Pension: everything you ever wanted to know, explains: “The rules for topping up your State Pension are complicated. But if you can afford to make voluntary contributions, particularly Class 3 National Insurance contributions, the rewards can be large relative to the cost of doing so.”
You should also check that you have kept track of all your private and company pension schemes – if you have had a number of different jobs and have moved house a few times, it can be easy to overlook some of them. The government offers a pension tracing service to help anyone who thinks they may have an entitlement from a former employer.
Even those who are close to retirement age should consider putting as much as they can into their pensions: the generous tax relief means that, for higher earners, the government will fund 40% of these contributions; while the more you have in your pot as you retire, the greater flexibility you will have about how and when to take your benefits.
Retirement need not be at a fixed time: a growing number of people are opting to phase their retirement, whether by reducing working hours at their existing job, by moving to a new part-time job, or by starting their own business. These earnings can top up income from pensions, or can allow you to take less of your pension income immediately so leaving more to spread across later years.
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