While in the past it was common to rely on a healthy final salary pension or the State to provide an income in retirement, responsibilities have shifted in recent years and the onus is now clearly on us to look out for ourselves.
The vast majority of us already know this but that doesn’t make it any easier. Working out how much you need to save now to create a healthy income in the future is hard and so too is finding the money to save while covering the mounting costs that today brings. At Bestinvest we think an excellent place to start is by making sure your existing pensions are working as hard for you as they can. Once you’ve done this, our message is that you should be saving as much as you can.
1. Get your existing pensions working hard for you
Most of us have collected a number of different workplace pensions as we’ve changed jobs throughout adult life. We may also have built up a number of personal pensions too. This makes managing them challenging and, although they usually add up to sizeable assets, it’s extremely common for people to know next to nothing about them. In fact, according to recent research from charity Age UK, one in four people has actually lost track of a pension altogether.
One of the most important steps you can take when planning for retirement is to give your existing pensions a thorough review to make sure they are up to scratch – and then take action if they’re not. Quite simply, you won’t have nearly as much money in retirement if your savings are stagnating in underperforming pension funds. This is a really simple way to boost your retirement fund without even adding any more money.
2. Save as much as you can
People often find saving for retirement off-putting – or even futile – because they can’t envisage ever succeeding in building up sufficient funds. This is often because they overlook – or underestimate – quite what a strong ally compounding is when you are saving for something in the future. Compounding refers to the snowballing effect that happens over time as your earnings generate more earnings. Even if you start off by investing a modest sum, under the influence of compounding, you are likely to see your savings grow quite substantially over the long term.
3. Make the most of pension tax breaks
As well as having compounding on your side, if you’re using a pension to save for retirement you’ll also benefit from sizeable tax breaks. While successive governments have tended to change pension rules and regulations, which has left many of us confused or even uneasy about pensions, the bottom line is that the Government wants us to save for retirement and to encourage us to do this, it gives us tax relief on the money we pay into pensions.
Our free Planning for Retirement guide gives you more information on making the most of existing pensions and pension tax breaks.
We think SIPPs (Self-invested Personal Pensions) are an excellent way to save for the future. Download our free What is a SIPP? guide to find out more.