Individuals who achieve the retirement they want without carefully planning it are few and far between, so why leave it to chance? With Pension Awareness Week taking place from 15 to 19 September, now is a great time to revisit your pension and to check whether your wealth plan is on track.
Unfortunately, pensions are typically something that people just think of procrastinating. But with increased living costs, longer life expectancy and new tax proposals on the horizon, your pension review should be high up on your agenda.
Get to know your pension
Although pensions are key to a secure retirement, many individuals struggle to give it the importance it deserves. Recent research suggests, one in five people don’t know what type of pension they have, and more than half (55%) don’t know where their money is invested1.
Many also struggle to keep up with different pension pots. Nearly 70% said they had between one and five pensions. One in five don’t know how many, while more than one-third weren’t sure how to access them.
There’s also a lack of awareness around pension tax relief; 57% didn’t know the government tops up pension contributions2 and just 7% were aware pension tax relief starts at 20%. Encouragingly, a quarter (25%) have increased their contributions, but many others didn’t know they could. The findings make it clear: people need more help to take control of their pension savings.
How much do you need in retirement?
The Pensions and Lifetime Savings Association (PLSA) has outlined three Retirement Living Standards to help individuals work out their retirement income needs. A Minimum standard at £13,400 per year for a single person covers basic needs with some social activities; a Moderate standard at £31,700, allows for more financial security and flexibility; while a Comfortable standard at £43,900, affords greater luxuries like extended holidays and regular leisure activities.
The figures are higher for a couple to have the same standards, and they exclude housing costs. So, if you anticipate rent or mortgage payments in retirement, you should plan accordingly.
Pensions and inheritance – new rules, new risks
Along with paying for retirement, pensions have long been a popular estate planning tool. Because most defined contribution pensions fall outside your estate for Inheritance Tax (IHT) purposes, they’ve been a way to pass on wealth in a tax-efficient way.
But that is set to change, as the government plans to bring unused pensions into scope for IHT from April 2027. This will significantly affect those planning to leave their pension untouched and passed on to the next generation. It’s a reminder that pension rules can and do change and what worked five years ago might not be the best approach in future.
Keeping your financial plan up to date has never been more important than today. In this constantly evolving landscape, it’s important to regularly make sure your wealth plan is working for you in the most efficient way.
Time for a pension review? Taking the first step
Pension Awareness Week is the opportune time to ask yourself some honest questions. Do you know how much you’ve saved and whether it’s enough? Do you know how many pensions you own? Do you know how your money is being invested? Are you taking advantage of tax relief on pension contributions? What income do you want in retirement, and are you still on course to achieve it?
You don’t need to know all the answers before speaking to someone – you just need to be willing to start the conversation. A financial adviser can help you understand your current situation, work out whether you’re saving enough, and decide when and how to access your funds.
Your adviser should explain your options for consolidating old pensions, making the most of tax relief, or adjusting your investments to match your time horizon and risk appetite. They can also help with more complex questions, like when to start drawing from your pension, how to balance income needs with tax efficiency and what to consider if you want to leave money to loved ones.
Whether you’re decades away from retirement or already thinking about when to stop working, now’s your chance to find out whether your pension is still on track. Talk to us to get your finances on track in the journey towards financial freedom. Please contact the team on 020 7444 4030 or email us.
1 Aviva
2excludes Relief at Source schemes
Sources:
- Home – PLSA – Retirement Living Standards
- Useful resources – Pension Awareness Day
- Pensions Policy. UK Pension Statistics and Facts – Pensions Policy Institute
- Aviva study reveals critical knowledge gap about UK pensions – Aviva plc
- https://www.pensionsage.com/pa/Over-half-of-UK-adults-lack-confidence-in-amount-saved-for-a-moderate-retirement.php
- Check your State Pension forecast – GOV.UK
Please note that this article is intended for educational purposes only and should not be taken as investment advice. Tax rules are subject to change and taxation will vary depending on individual circumstances. The value of investments can go down as well as up and you could get back less than you invested. Investment in funds will not be suitable for everybody and you should make yourself aware of the risks before investing and if you are unsure, you should seek professional advice.