THANKS to the coronavirus crisis, some people may have seen their pensions savings depleted and may be forced to delay retirement.
Fortunately, if you're planning to retire in the next few years, there are easy things you can do to boost your pot by thousands and protect your savings.
⚠️ Read our coronavirus live blog for the latest news & updates
As pensions are invested, jittery stock markets and low interest rates can mean that your total amount of savings move up and down.
This means that how much money you have to live off once you retire can change.
In fact, research from pension provider Smart Pension and YouGov showed that one in eight adults over 55 are planning on delaying their retirement due to the pandemic.
Here's how to make sure that you have the best retirement possible and you can stop work when you want.
Tell your pension provider when you plan to retire
One of the biggest mistakes people make when it comes to their workplace pension schemes is forgetting to update their provider on retirement plans.
When you start a pension, you're usually asked to estimate when you want to retire.
This is because lots of pension schemes change the way that you're invested as you approach retirement moving some of your money from equities and alternatives into bonds.
The set-up is designed like this so that your pot is stable before you stop work – that means your investments won't go up as much, but you won't lose lots of money either.
But if you change when you want to retire, and don't update your pension provider, then you might not be moved to the right mix of assets at the best time.
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it so it's compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% and employers contributing 3%. This is up from the 5% of contributions workers and companies were required to pay in previously, where employees contributed 3% and employers 2%.
- Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £175.20 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify.
- Basic state pension – If you reached the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £134.25 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.
Alistair Byrne, head of retirement strategy at State Street Global Advisors said: “The key thing is to have your pension invested in lower risk investments if you are closer to retirement. That way you will be less affected by what happens in the markets.
"If you are further from retirement, the key thing is to keep saving and keep invested. There is plenty of time for markets to recover and your pot to grow.”
Pension schemes usually write to you before you retire to check your plans, but if you have moved jobs or home you might not get the information.
Make sure that you update your retirement date with each of your pension providers, ideally five years before you plan to take your money.
Tell your pension providers how you plan to take your money
Laws introduced in 2015 mean that retirees are no longer forced to buy an annuity when they retire.
Instead there are a variety of options available including staying invested – which is called going into drawdown and even taking cash lump sums.
Which route you choose to go down impacts how your money should be invested in the five years or more before you retire.
Again, telling your pension providers what you plan to do will make sure that you are invested in the way that maximises your funds for retirement.
Top tips to boost your pension pot
DON’T know where to start? Here are some tips from financial provider Aviva on how to get going.
- Understand where you start: Before you consider your plans for tomorrow, you'll need to understand where you stand today. Look into your current pension savings and research when you’ll be eligible for the state pension, and how much support you’ll receive.
- Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
- Take advantage of online planning tools: Financial providers Aviva and Royal London have tools that give you an idea of what your retirement income will be based on how much you're saving.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.
Check for missing pots
When you move job or home it's easy to lose track of one or more of your pensions.
Pensions Policy Institute research estimates that there are around 1.6 million pension pots worth £19.4billion unclaimed.
That works out at nearly £13,000 per pot, meaning finding your missing pensions savings could add thousands to your retirement fund.
If you think you might be missing a pot, you can use the government's Pension Tracing Service to help locate it.
This will help you find the contact details of relevant schemes, meaning that you can get in touch to check whether they have any of your savings.
You can search by your former employer for workplace pensions and also by pension provider if you're missing private savings.
With all the different options available at retirement, making the wrong choice could land you with a hefty tax bill.
But making the right choices could lead to a significant windfall. In a nutshell, taking advice could add over £30,000 to your savings.
Darren Philp, Director of Policy at Smart Pension, explained: Getting financial advice from a reputable and regulated financial adviser can help, while the Government's Pensionwise service can help people understand their options."
Comprehensive research from the International Longevity Centre UK found that the benefit of financial advice for the accumulation of pension
wealth is £30,991.
You can find a financial adviser using services such as Unbiased.co.uk, and the Money Advice Service's Retirement Adviser Directory.
It's also worth checking he Financial Conduct Authority register to make sure your adviser is properly authorised.
Switch and save
If you plan on choosing to the drawdown approach to retirement you need to shop around rather than just sticking with your current provider.
Research from Which? found that you could save £20,600 on fees alone just by shopping around.
To find out how to make sure you get the best deal – read our guide here.
When can I retire?
IF you’re wondering when you can retire, it’s best to speak to your pension providers.
Firstly, use the government's tool to check your state pension age.
Next check retirement ages on workplace pension schemes – Aviva says this can massively impact your windfall once you enter your golden years.
For advice, you can contact The Pensions Advisory Service for free online or on 0800 011 3797.
Maximise your state pension
To get the full state pension – worth £9110.40 per year – you need to have 35 qualifying years of National Insurance payments.
You need 10 years of qualifying payments to get any state pension at all.
If you have gaps, you might be able to fill them with National Insurance credits, or you can pay voluntary NI payments to top up your state pension.
You can check how much you are likely to get on the government website here.
Consider delaying retirement
If you don't have enough savings to fund the retirement you want, staying in work for a few extra years can help you build extra cash.
John Tait, retirement advice specialist at Standard Life, said: “In light of the pandemic, we’ve seen a rise in the number of customers coming to us for advice on whether they have enough money to retire as planned.
"For some… we have to have a serious discussion around whether this is the right decision for them or if they may struggle to meet their desired income needs in future.
“It might be that they need to work for a while longer or perhaps switch to working part time."
If you are delaying retirement, make sure you maximise your pensions savings while you are still at work.
You can even boost your state pension if you choose to delay retirement beyond your state pension age.
You could save up to £20,600 on fees by switching pension providers during retirement.
Pension firms issue warning to savers over transfers.
How switching from your workplace pension could cost you £247,000.
Source: Read Full Article