Scottish Widows expert reveals simple steps to take if you are worried about your retirement prospects
What’s clear though is that some people could be at risk of falling short.
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Hide AdA recent report from Scottish Widows found that more than a quarter (27 per cent) of those who have made retirement plans don’t believe they’ll ever be able to afford to put their feet up.
Scottish Widows also estimates that nearly two-fifths (38 per cent) of people aren’t even on track for what the Pensions and Lifetime Savings Association (PLSA) deems a ‘minimum lifestyle’ in retirement, which would give them enough money to cover the basics, plus some left over for fun.
To help people work out whether they are on track for a decent retirement, and what to do about it, Pete Glancy, head of pension policy at Scottish Widows, has some tips:
1. Know the current situation
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Hide AdIt may be easier to bury your head in the sand, but the first step is to know how much you’ve got in your pension and what your projected pension income might look like.
“Log into your accounts and look at how much you have saved, and calculate what your retirement pot might be when you reach retirement,” says Glancy.
Several pension providers have tools and calculators in apps and on websites that can help people to get an idea of how much money they may eventually end up with at retirement, based on what’s there already.
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Hide AdGlancy adds: “You might also want to request a state pension forecast to give you a view on how much you’ve built up so far.”
More information about state pensions can be found on the gov.uk website.
Glancy adds: “It doesn’t matter how far off retirement might be – getting to know your pension savings as early as possible is really important.”
2. Think about your retirement lifestyle
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Hide AdGlancy says: “Whether it is spending more time with loved ones, moving closer to family, travelling, or doing more of what you do now – it’s important to consider what life could look like in retirement.
“And while the fun stuff is easy to think about, it’s important to also factor in costs like care, bills, food and housing.
“We found that half of people in their 50s and early 60s have done little to no research on how much they might need to save for retirement. If you don’t know where to start, the PLSA has published a set of retirement living standards that show what life in retirement could look like at different income levels, and this can help you work out how much you need to have saved.”
3. Work out if you are on track
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Hide Ad“Our retirement report found that 38 per cent of people are currently on track for a less than minimum retirement lifestyle – up from 35 per cent in 2023,” says Glancy.
“This is really concerning and shows how important it is that action is taken early. If you aren’t on track, don’t panic – there are things you can do.”
4. Try to increase your contributions as early as you can
The earlier you save into a pensions pot, the longer that money has to grow by earning interest.
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Hide AdGlancy says: “If you are in a workplace pension scheme, opting to boost your pension contributions is a good way to add more to your pension pot while also giving that money time to grow. In some cases, your employer will match any increases you make.
“Auto-enrolment (into workplace pensions) has been a game-changer in getting people to save for the future but it needs to be taken to the next level.”
5. Boost your savings when you get a pay increase or any bonuses
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Hide AdNot everyone can afford to increase their pension contributions, but if you get a pay rise, it might be an opportunity to put some extra money into your pension.
Glancy says: “A pay rise is a good time to increase your pension contributions, even if it is just by an extra 1 per cent or 2 per cent – it can make a real difference in the long run. Or if you get a bonus, you might want to add some or all of that money to your pension as a one-off payment.”
6. Make the most of tax relief
“Some pension schemes will only claim back pension tax relief at the basic rate of 20 per cent,” says Glancy.
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Hide Ad“If you are a higher-rate tax payer, you might need to claim the additional tax relief yourself. Contact HMRC (HM Revenue and Customs) if you are unsure and they will be able to advise.”
7. Think about your retirement options
Scottish Widows’ research indicated that more than half (54 per cent) of UK retirees expect to work longer than they would like, on average by seven years, with just 26 per cent expecting to retire at or before the current state pension age of 66 years old.
Glancy says: “Delaying your retirement can give you more time to make contributions, leave that money invested and give it the potential to grow until you decide to take money from it. This might mean phasing into retirement or finding work that you are happy to continue well into later life so think about how this could look for you.”
8. Research your income options
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Hide AdUnder the flexible pension rules, over-55s can take up to 25 per cent of their pension tax-free.
Glancy says: “After that, most people will opt for an annuity or to move into drawdown.
An annuity provides a guaranteed retirement income, usually for the rest of someone’s life, while drawdown has more flexibility and leaves your money invested while you take an income from it.
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Hide AdGlancy suggests: “Look into these options and what you think will work best for your lifestyle in retirement.”
9. Consider other income sources
Glancy says: “A pension is the main way to save for retirement but don’t forget about other income sources you might have, or assets you own.
“You might consider downsizing to release some money from your property or use other savings you might have in an ISA, for instance.”
10. Prepare for the unexpected
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Hide AdGlancy adds: “The best laid plans can sometimes go awry so build flexibility into any plans you make and accept that they might change with life’s various twists and turns. Review both your financial and lifestyle plans regularly and make changes where you need to.”
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