The recession has meant that two million people in the UK have had to delay their retirement plans because they will not have the amount of money they expected to. So what can those approaching retirement do to protect their savings and get a better pension?
Should Individuals Rely on the State Pension?
Anyone relying on the state pension in retirement is likely to be very disappointed. This tax year the full basic state pension is £95.25 per week for a single person, and £152.30 per week for a couple. Given increased life expectancy, many experts predict that the state pension may not even be around in years to come. Therefore a pension from a job, or a private pension, is a necessity.
How Much Should You Save?
Most people are probably not saving enough. Those people who save 10% of their salary – an average amount – from age 25 to 65 can expect to receive only about a quarter of their final salary on retirement.
For those who have a final salary pension scheme things look better, but most people are unlikely to be in such a scheme for their entire working life, so will need to supplement it with a private pension.
Top Ups – the Way to Get More Money From a Pension
There are no restrictions on the number of private pension plans a person can take out, as long as total contributions do not exceed earnings or the annual £245,000 allowance, whichever is higher. This means that a pension can be topped up by making additional contributions or by opening another pension plan. Those who belong to final salary pension schemes may be able to buy ‘added years’, which will increase pension entitlement later on.
Making Good Losses During the Recession
Those coming up for retirement may find it advantageous to make last minute additional contributions, as the tax relief on these will boost a pension fund’s value. For example, if a higher rate taxpayer were to contribute £8,000, this could end up as a net cost of £6,000 for a £10,000 pension contribution!
Getting a Better Annuity
When someone comes to actually take their private pension, it is important not to just go for the pension offered by one’s pension provider. The new pensioner should always exercise his or her ‘open market option’, which means shopping around to find the best annuity rates. This can make a great deal of difference over a lifetime.
Whatever age a person is in, careful pension planning and saving can make a great deal of difference to a comfortable retirement and one which is something of a struggle. This is especially the case in the current economic climate.