Here are the steps you must take to enjoy a happy retirement - Sarah Coles

An awful lot of people don’t really think about this: they’re just saving on autopilot. Automatic enrolment into workplace pensions has made this the norm, where if you do nothing, it will be up to your employer how much you save. If you’ve chosen to boost contributions, or save elsewhere, there’s every chance this had more to do with how much you could afford to free up – rather than how much you actually needed to pay in. It’s one reason why our research shows that only around a third of people are confident they’ll be able to afford to retire – a figure that falls closer to a quarter among women and those in mid-life.

It means we could all gain something from spending a bit of time working out just what we need in our pension pot – regardless of where we are right now.

This process starts by working out the kind of retirement you want to have – when you want to retire, where you want to live, and the lifestyle you expect. We spend surprisingly little time going through this kind of thing. My husband and I can spend a good hour and a half discussing where we might go out to dinner – and yet we’ve spent hardly any time talking about the kind of retirement we might want together. Part of the problem is that so much is unknowable. We have no idea, for example, what kind of health we might be in, or whether by then we’ll be quite so keen to spend so much time together.

Armed with a rough sense of your plans, you can do your research to find out roughly how much it’s going to cost. One really handy place to start is the Pensions and Lifetime Savings Association, which has laid out three tiers of retirement and roughly what they’ll cost today.

For the minimum income in retirement, it estimates a single person needs £12,800 a year and a couple £19,900. This covers spending £54 on food a week – including meals out, a one-week holiday in the UK each year and a long weekend, plus essential home maintenance and £580 a year for clothes and shoes. You wouldn’t be able to run a car on this budget.

For a moderate income it says a single person needs £23,300 and a couple £34,000. This increases the food budget to just £74 a week, and the clothes budget to £791 a year. It means a bit more home decoration in addition to basic maintenance, plus two weeks in Europe and a long weekend in the UK, and a three-year-old car, replaced every ten years.

Finally, for a comfortable retirement, a single person needs £37,300 and a couple £54,500. It boosts the food budget to £144 a week, and clothing to £1,500. It allows for a new bathroom and kitchen every 10 or 15 years, three weeks in Europe, and a two-year old car replaced every five years.

Once you know roughly the lifestyle you want – and the cash you’ll need to cover it, your next job is to find out what you’ve got so far. This means digging out the paperwork from any old pension, and details of what you’re currently contributing. You should also check what you are due to get from the state from the gov.uk website. It may not be the full state pension, if you have missing years or contracted out for a period, so this is worth knowing now, while you have a chance to build other income.

Armed with all of this, you can feed it into a pension calculator, which will assess where you are right now, and the contributions you need to make to be on track for the pension income you need. We have one on the HL website Pension Calculator | See your private & State Pension income (hl.co.uk), but there are plenty of different calculators around.

The result this spits out is unlikely to require you to build a £1 million pension. However, you may be surprised at how much ground you need to make up. If this is the case, it’s essential not to let it send you dashing back into the dark, because there are plenty of things you can do.

It’s worth contributing as much as you can reasonably afford today, and making more commitments for the future. For a lot of people, if you can’t afford to pay any extra in right now, it makes sense to make plans to increase contributions when you have a pay rise. That way you’ll be boosting your pension before you have a chance to consider what else you might want to do with the money.

Increasing contributions isn’t the only option. You can also think about how hard the money is working for you in your pension. You may be in the default investment option in the scheme – which usually aims to take a medium amount of risk by mixing shares with other things like bonds. If you’re prepared to take on a little more risk, and focus on shares for example, over the long term of at least 5-10 years or more, you stand a better chance of seeing more growth.

You may also be able to re-think your retirement plans. You can consider phasing retirement, so you work at least part-time for longer. Alternatively, you could re-think where and how you plan to live, so you have a more realistic target to aim for. If you’re hoping for a retirement of travel and excitement, it’s not going to be easy to adjust to one where you can’t afford a car. However, being armed with the knowledge sooner rather than later at least gives you more options.

Good news on energy bills

This week the government also announced the shelving of the planned rise in the energy price guarantee. It was set to rise from £2,500 for the average user to £3,000 – which would have cost an extra £160 between April and July. The axing of the hike is a huge relief, but it’s not going to solve energy bill struggles at a stroke. Already half of people are finding it difficult to pay their energy bills and more than one in 20 have fallen behind. For these people, the end of the £400 rebate in April – which provides a £67-a-month discount - is going to mean even bigger bill nightmares.

We will have to cling to the hope that wholesale prices will fall enough to take the energy price cap below £2,500 sooner rather than later – at which point we will switch from the price guarantee to the price cap. Right now, the cap is forecast to be £2,100 by July, which would ease prices for millions of us. However, there’s no getting away from the fact that even £2,100 is way above pre-pandemic levels, and will still leave an awful lot of people struggling to pay the bills.

SARAH COLESHead of Personal Finance and Podcast Host for Switch Your Money OnHargreaves Lansdown