Pension planning through the ages

Posted by Ian Taunt in Latest insights category on 24 May 19


With busy lives and an endless list of competing priorities, planning for your retirement may rank somewhere below catching up on that TV box-set or fixing the wonky shelf on your to-do list. Retirement planning is, however, something we should all think about throughout our working lives. A little time invested can really pay off in the long term.

Having recently launched our guide to pension tax relief and a handy tax-relief calculator, I thought I’d share some key retirement planning considerations, whatever your age. Whilst you might have your own retirement sorted out, helping your children or grandchildren plan for their own retirement could be invaluable.

Your 20's and 30's

Your 20’s and 30’s might seem like the time for planning your career rather than thinking about the end of it. Youth, however, is perhaps the biggest advantage in retirement planning.

With a long-time horizon ahead of you, you can really benefit from compounding (the process where an investment’s earnings are reinvested to generate additional earnings over time). The sooner you start saving, the better. For example a 25 year old who puts aside £75 a month could have a pot worth £114,000 at age 65 assuming their investments grow at 5% a year after charges. If instead they started saving £150 a month when they were 45, the pot might only be worth £61,000 despite having saved the same amount.

All employers are required to enrol certain staff into workplace pension schemes and to contribute to them. Opting out means you would lose valuable employer contributions.

Your longer time horizon also means that you might be able to tolerate more volatility with your investments as you have the time to wait for your investment to recover from any downturns.

Your 40’s

Your 40’s are a crucial decade for retirement planning. You’ll still have 20 or more years but the ultimate time horizon is starting to become visible. It’s a time to look at how much you’ve already saved – you might want to review your goals and consider how much risk you are taking. Find out what your pension might be worth when you plan to retire – you can use our goal planning tool to get an idea of how changing your savings habit might affect this.

You are likely to be more established in your career and your earnings might be peaking. This is the ideal time to take advantage of the generous tax reliefs on offer and boost your contributions.

Saving more out of any pay rises is a good habit as you don’t miss what you didn’t have.

If you have any spare cash available, think about making a lump sum contribution to your pension. You can normally contribute up to £40,000 in a year (or 100% of your earnings if lower) and get the benefit of tax relief. You might even be able to contribute more by carrying forward any unused allowances from previous years.

You might have had a few jobs and amassed a number of different pensions. Consolidating these could make them easier to manage and could save charges which can have a significant impact on the final value. If you’re looking at options to consolidate your pensions, take a look at the Willis Owen SIPP here.

If your employer offers a workplace pension scheme and you are not a member, consider joining it to make the most of the employer contributions, which could be very generous.

50’s and 60’s - your final pre-retirement years

In your final pre-retirement years, it is important to firm up your retirement plans. Balance your retirement savings with paying off any residual debts – ideally you don’t want to carry these into retirement.

The prospect of retiring will be becoming a reality and it’s a good idea to plan the kind of retirement you want and work out how much you think your lifestyle will cost. Listing your expected outgoings is a good place to start. Also think about hobbies and holidays and how you’re going to spend your time.

Retirement is now close enough that you can have a better picture of how much money you’re likely to have. Decide when you would like to retire. If you’ve not yet got a big enough pot you might need to think about increasing your contributions, delaying your retirement, downsizing your home or perhaps consider working part-time for a while.

Look beyond pensions when thinking about what you’ve got. ISAs and cash savings can all form part of your plans.

Your expenses may have dropped by this point with any children (hopefully) starting to be self-sufficient. Make the most of the tax reliefs and top-up your pension.

Consider consolidating any old pensions and trace any you’ve lost track of. It is also worth getting a projection of your state pension benefits. If you have any gaps in your national insurance history, consider paying voluntary contributions to top-up your entitlement.

Think about reducing the risk and volatility of your investments. In retirement you may want your investments to generate an income so spend some time getting a plan in place and slowly start moving your investments as you approach retirement. Consider how you are going to take your pension benefits and use the free guidance services on offer from the Government’s Money & Pensions Service.

Having a plan in place will make saving for retirement easier and means that you are more likely to achieve the retirement of your dreams.

Important Information: We do not give investment advice so you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.