Following the Coronation of King Charles III, this month is all about celebrating everything Royal. Here, we look at ways of bolstering your retirement provision for those golden years.
Recent research by the Pensions and Lifetime Savings Association (PLSA) has highlighted that the cost of living crisis and rising inflation have impacted the future cost of retirement. According to the PLSA, the minimum figure required in retirement by a single pensioner increased by 18% to £12,800 a year in 2022. For a couple, the minimum required is now £19,900 a year, an increase of 19% on the previous figures.
This minimum standard of retirement includes £54 a week to spend on food, £580 per year for clothing and footwear and one annual short break in the UK. However, there is no allowance for ongoing mortgage repayments, a car or foreign holidays. Should any of these be required or desired, ongoing costs in retirement could be substantially higher. If you are aiming for a more eminent lifestyle in retirement an individual is forecast to need £37,300 a year, with a couple requiring an annual income of £54,500.
Despite these figures presenting a picture of doom and gloom, it is estimated that 72% of the population are on track to reach at least the minimum standard of living in retirement. This is in part thanks to this year’s 10.1% boost to the State Pension, which, if available in full to both parties in a couple, means the minimum requirement of £19,900 a year will be reached, with a small surplus left over.
There are, of course, numerous strategies available for achieving a superior standard of living in retirement. These include:
Check your State Pension Record
The State Pension is often considered the foundation of a retirement plan, providing an inflation linked income for life. It is therefore important that your record is obtained and checked well in advance of State Pension age, so that any gaps could be made up before receipt starts. Outlined here on a previous blog, there is still a window of opportunity until 31 July 2023 to buy up to 16 previous years of voluntary National Insurance contributions to ensure you receive the full State Pension.
Saving into a Workplace or Private Pension
Whilst earning, making the most of available tax reliefs on pension contributions is important. If you are in a workplace pension scheme, you could consider paying over and above the minimum required percentage, and asking your employer to match this. Thanks to the increase to the pension Annual Allowance, which is now £60,000 a year for eligible individuals, there is a greater opportunity to boost pension pots for those that are able. Similarly, the abolition of the pension Lifetime Allowance presents an opportunity to pay larger levels of contributions over time, without the concern of a future tax charge.
Whilst pensions are largely associated with retirement, ISAs are also a valuable savings wrapper as they are completely tax-free. Each adult has a £20,000 annual ISA allowance, which can be accumulated across the range of ISA products, including Cash ISAs, Stocks, and Shares ISAs and the Lifetime ISA. Building an ISA pot effectively creates a tax-free income stream for retirement. When used alongside pensions to draw income, an individual can often stay within the basic rate income tax band as a retiree. Cash ISAs and Stocks and Shares ISAs also offer the flexibility of access, should the funds be required earlier.
Review your Existing Pensions & Investments
As well as perhaps not saving enough over time, many individuals are also unaware of the status of their existing pensions and investments i.e., how much they are worth and how they are invested. It is therefore very important that they are reviewed at least once a year. It is only by undertaking this process that you can check if you’re on track for the standard of retirement you are aiming to achieve.
Retirement is often depicted in glossy brochures as a bed of roses; however, the reality may involve hurdles that aren’t foreseen. By committing to a financial plan, regularly reviewing it, and remaining dedicated to your future, you could amass a princely sum and with it, a comfortable retirement.
For further help, or to speak to one of our financial advisers about obtaining advice specific to your circumstances, please get in touch.