In this post we share tips on getting your finances in order as you approach retirement age, and before! What steps can you take now that will ensure a pension that allows you to enjoy your retirement?
Over the course of a lifetime we collect many things and pensions are no different! From previous, long forgotten employers you might have pensions that are still accumulating – do you know what they’re worth?
Make it your business to find out what you’ve got, how much it’s worth, how well it’s performing and how much the charges are. Transfer any pensions that aren’t pulling their weight.
But I would recommend you seek independent financial advice before making any decisions.
What type of pension do I have?
There are three main types of pension: the State Pension, defined benefit pensions and defined contribution pensions.
Most people get some State Pension. It’s paid by the government and is a secure income for life which increases by at least the rate of inflation each year.
You build up your entitlement to the basic State Pension by making National Insurance contributions during your working life. In some cases you can do this even when you’re not working, such as when you’re bringing up children or claiming certain benefits.
If you’re an employee you may also qualify for Additional State Pension. The amount you get is based on your earnings as well as the National Insurance contributions you’ve made or been credited with.
If you’ll reach State Pension age on or after 6 April 2016 you’ll get the new State Pension. This will be a flat-rate pension based only on the number of years of National Insurance contributions or credits you have. If you’ve already built up State Pension under the existing system this will be translated into an amount that goes towards your new State Pension on 6 April 2016.
Joining A Workplace Pension Scheme
If you have access to a workplace pension scheme, then it’s likely to provide you with the most convenient route into pensions saving.
Schemes with employer contributions
Workplace pensions are particularly advantageous if your employer will contribute to the scheme. If that’s the case, then joining the workplace scheme is usually a great way to start your pension savings. Any money you put into the scheme will be topped up twice – first by your employer and second by the government, in the form of tax relief.
Schemes without employer contributions
Even if your employer doesn’t currently contribute to their workplace pension scheme (employer contributions are gradually being made compulsory), there may still be advantages to joining rather than making your own pension arrangements.
For example, signing up to a scheme offered by your employer cuts down on the time and admin involved in starting your pension savings – in a workplace scheme contributions are taken directly from your pay. But against that you need to consider that there may be better deals available on the market, such as personal pensions with lower charges than your employer’s scheme.
To find out about auto-enrolment pensions visit the Money Advice Service’s website.
You can work out when you will reach State Pension age here.
Have You Got Any Money Tucked Aside In Savings And Investments?
If you’ve got money in other pots you’ve got two options here. The first is leave the money where it is so you have more flexibility (if this is the case make sure your savings account, cash ISA, or investments are performing competitively – switch them if they’re not). The other option is to pay surplus savings into your pension. You can pay up to a maximum of your annual employment income or £40,000 per year (if less) into your pension and claim income tax relief on this amount.
You should also consider any debts you have – paying off expensive credit card and overdraft debt in the near term, will free up more money to pay into your pension in the long term – so prioritise this first (transferring expensive balances onto a 0% balance transfer credit card is a good idea as well).
Look at your mortgage – will the term extend into retirement? Can this be reduced so you’re mortgage-free earlier? Don’t sit on the time bomb and expect it to defuse itself – take action. Now!
It’s surprising how often I meet people who don’t know exactly where they stand financially: with forgotten pension schemes, dusty old savings accounts, investments that are under performing, and a mortgage that could have been paid off before retirement hits. Take control now and you can work towards the best retirement outcome possible.