Preparing For Retirement With Retirement Planning

It is always a good idea to be prepared for retirement as early as possible. It is advisable to think about your financial well being around two years prior to retirement as there are several choices to make and many things to think about. It is always advisable to get some financial advice when making these decisions as they could affect your income for the rest of your life and keep you financially secure for the rest of your retirement.

A pension is a way of saving for your retirement. For each payslip you receive throughout your working life you can put money into your pension each month and in return, you get a regular income once you've retired. Tax is not paid on pension contributions, meaning it can be more cost effective than saving for your retirement in other ways.

There are three types of pension:

State Pension

When you reach state pension age (which changes frequently but is currently 63 for women and 65 for men), you will receive an income from the state, called the state pension.

Workplace Pensions

It is unlikely that the state pension will be able to provide your total retirement income, so most people take out a workplace pension via their employer to top it up. Workplace pensions take regular contributions from you, your employer and the government, and put them towards a pension when you retire.

Your contributions will make up a percentage taken from your salary each month, and a percentage from your employers also. These contributions will be invested in order to increase the amount you have to retire on.

Personal Pensions

Personal pensions are pension schemes that you pay money into every month. They are run by a pension scheme provider (selected by you) and upon retirement you receive a sum with which to buy an annuity or arrange a monthly income. Personal pension schemes have become more flexible since April 2015. (Annuity is a type of financial product that gives you retirement income for life). Like workplace pensions, personal pensions invest your money with the intention of increasing it.

Personal pensions are particularly suitable for the self-employed or people who do not work a regular job, who don’t have access to workplace pensions. However, anyone can open a personal pension plan.

All three types of pension are available to everyone, as long as you are in employment.

Where Do I start?

You need to work out how much you are likely to need to live on in retirement before you can begin planning how much to save and where.

We suggest you:

    • Ask for a State Pension statement (if you haven’t received one recently). This will give you a breakdown of how much State Pension you will likely receive when you reach pensionable age. The figure is based on the National Insurance contributions you have made over the course of your lifetime. This information can be found at GOV.UK.
    • Calculate your savings and investments. Work out how much you could have for your retirement by adding up all your monetary assets (savings/ISAs/bonds etc). Whilst a pension is an excellent way to save for your retirement, you might also be able to rely on other savings or investments to increase your retirement income.
    • Trace any lost pensions. If there is a chance that you have lost track of any old pensions, you can track them down here. This applies to far more people than will realise. This is a free Government run service so DO NOT confuse it with commercial services that will charge you what the government will do for free!

Clear your debts before retirement. You should try and start your retirement as debt free as possible as it is likely that your income will be significantly less than before. Calculate how much you owe to whom, check the interest rate on each debt and If at all possible, pay off the debt with the highest interest rate first. This is the most efficient way to clear your debts and plan for a comfortable retirement.

Boost Your Pension

If you’re nearing retirement and the pension you are due to receive is less than you had hoped, the amount of change possible, to boost your pension significantly, is limited. However, there are still things you can try, to make the most of the remaining time you do have.

There are two ways of increasing your pension before you retire: the first is to pay more into it and the second is to put back the date at which you begin to draw it, although neither might be desirable as the time nears.

When should I start drawing my pension?

You need to decide on a date when you wish to begin drawing your pension and there are several factors to take into account when doing so. Also, don’t forget, you don’t have to stop working to draw your pension, but you do have to be at least 55 or over. If you suffer disabilities or ill health, this might be an option for you.

You will need to communicate with your pension scheme provider about when to when to start drawing your pension. The kind of pension you have will also make a difference as to how you claim and for how much.

  • If you have a defined contribution pension scheme, new rules state you can take money out of it however you like.
  • If you have a defined benefit pension scheme, such as a public sector salary-related pension you are unlikely to be able to transfer it or take money out of it directly.
  • If you have a private sector salary-related pension, you could transfer it but independent advice should be sought beforehand. It is not normally advisable to transfer.
  • You can work for longer and defer your State Pension until a later date and receive a higher amount then. This can be done by drawing a higher weekly sum.
  • Your workplace or personal pension scheme might offer the choice as to whether to delay drawing your pension and whether there would be any additional charges if you did.

Here is what we advise you do:

    • Get financial advice about what options are available to you.
    • You are entitled to a free pensions guide through a Government initiative called Pension Wise. You can access this online, over the phone or in person.

State Benefits

When you get closer to retirement age you become eligible for certain benefits such as a free bus pass, free NHS prescriptions and free eye tests. Depending on your age, you might also qualify for winter fuel payments.

If your retirement income is particularly low, you may be able to claim pension credit which would give you access to further benefits such as housing benefit and a council tax reduction.

It’s a great idea to think about future planning as early as possible.