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How much pension income do you need to live comfortably on in retirement? 

That’s the question we tackle here in this article, as we help you think about planning for a stress-free retirement and financial future that will allow you to continue enjoying the good things in life. 

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What Does A Good Pension Pot Look Like?

We all reach that stage – either through choice or necessity – when we start thinking about how big a pension we need, or want, to live off in retirement.

One thing’s for certain: a UK State Pension alone might possibly be enough to ‘get by on’ for the basics. But it definitely won’t provide you with a comfortable life financially, nor the kind of lifestyle you might have become accustomed to in your working years.

To put this in perspective, a single pensioner would – according to the Pensions and Lifetime Savings Association – need a pension income of £10,200 to live a ‘minimum level’ lifestyle in retirement[1].

It doesn’t sound like a lot to live on, does it?

Especially when you consider that the current maximum State Pension is only a little over £9,100 a year[2].

Use our specially designed Retirement Planning Calculator to compare the level of income you aspire to enjoy in retirement with the actual income you can actually expect from your existing funds.

This calculator is for guidance purposes only. It is not a projection and should not be treated as such. It is based on our understanding of current legislation and HMRC practice. It does not constitute legal or taxation advice.

This is based upon expected growth rate of the investments, inflation and management fees which have been input. Please remember that investments can go up or down.

[1] The Pensions and Lifetime Savings Association, Retirement Living Standards- October 2019
[2] 2019/20 Tax Year

 

Understanding Your Pension Pot And How To Boost It

There’s long been a culture in the UK of taking the first available pension options or pension plans and sticking with them.

That’s probably borne out of the fact that, historically, there wasn’t that much choice or flexibility in terms of pension options

Also, many of us will end up paying into several different employer pension schemes during our working lives and just carry on with them until retirement because it seems like the easiest thing to do. 

We can hardly blame people for that – potential options can be difficult to understand if you don’t seek out expert pension guidance or advice

Thankfully, though, people are – due in great part to the prevalence of price comparison websites and money advice experts like Martin Lewis – being encouraged to shop around, and not just accept the first financial product or option that crosses their paths.  

That said, weighing up which pension plan or option to go with is a much more complex decision with longer-term consequences than choosing which car insurance insurance provider to go with over the next 12 months.

Which pension plan option you choose should be one of the most important financial decisions you make in your life. 

And although you can research pensions yourself, you will benefit a great deal from consulting a trusted financial adviser with expert knowledge about the options available to you – some of which you won’t know about or be able to access if you’re going down the (frankly daunting) DIY route.

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55 As A Pension Pot Milestone

Why is 55 considered a key milestone for savers? Because it’s the first age at which you can access cash from your pension.

And, as such, 55 is the age when many can really start thinking about transitioning into semi-retirement.

If you’re approaching 55, you might be considering what a good pension pot value might look like. 

This will, of course, depend both on your circumstances and the kind of lifestyle you’d like to lead in retirement. 

To offer an example for context, a pension pot of £100,000 and a monthly contribution of £500 is likely to get you to a pension that achieves a retirement income of £25,000 a year from the age of 55 until you die. [2]

[2] Calculations assume single person with pension 5% growth rate, 1% charge and annuity rates as of September 2020.

This figure is an example only and not guaranteed. It is not a minimum or maximum amount. What you get back will depend on how your investment grows and the tax treatment of the investment. You could get back more or less than this.

Again, please make use of our free Retirement Planning Calculator to work out if your current pension and savings will really fund the life you want to lead in retirement – or whether you need to rethink your pension.

This calculator is for guidance purposes only. It is not a projection and should not be treated as such.

The value of a pension with St. James’s Place via Sage Wealth Management will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Having to really weigh up your pension options at the age of 55 might seem like an intimidating prospect, but our pension experts are here to help you make the best choice for you and your financial aspirations.

How To Potentially Boost Your Pension Pot Without Just Saving More

Saving is, of course, a key factor in ensuring you have a good pension pot to retire on. But it’s not the only way.

Below are some other tactics to consider for your pension planning strategies. 

Reducing your pension plan fees and charges

Most of us like to keep tabs on our monthly mobile phone credit card or mobile phone bill charges – and see if there are better deals or payment options out there.

Pensions come with fees, too; and these can have an impact on the pension pot you end up with in retirement. A financial adviser can help you find a pension plan that both works for your needs and minimises those charges. 

Do you know how your current pension has been invested? 

If you’ve signed up to a few workplace pensions or private pensions over the years, the chances are that you probably won’t know where or how it’s been invested. There’s no shame in that; they’re difficult to keep track of. 

But it could be that they haven’t been invested as well as they might have been, meaning that you end up with a pension pot shortfall. What a potentially nastly surprise that would be to find yourself confronting in the days leading up to your retirement.

It’s very important to regularly review your pension throughout your working life – and especially in the autumn years of your career. 

A pension advice specialist will help you assess where and how your pension has been invested, and identify pension solutions invested in more fruitful ways.

How flexible is your pension?

2015 saw the welcome introduction of pension freedom rules offering much greater flexibility and choice in terms of how and when people access their pension pots. 

These new flexible options included the ability to access your pension while continuing to work, take up to 25% of your total pension savings tax-free at the age of 55 or over, and ‘drawing down’ payments from your pension pot.

Drawdown is an increasingly popular pension option, and it’s well worth checking with a financial adviser to see whether your existing pension actually offers such flexible access. And if not, whether a drawdown pension would work for you and your needs.

In all cases, remember that the value of a pension will be directly linked to the performance of the funds you select, and that the value can therefore go down as well as up. You may, therefore, get back less than you invested.

Are there better ways to manage the tax on your pension?

Regularly reviewing your pension plan will potentially help you better manage and plan for inevitable implications.

Also, your financial adviser is likely to use that regular review to show you details of attractive tax-related options you didn’t know about.

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In Conclusion – Great Advice That Could Potentially Help You Boost Your Pension Pot

A lot of people quite rightly spend a lot of time thinking ahead to living a good life in retirement. 

But imagine working so hard and putting into a pension fund each month only to find, at retirement, that you don’t have as healthy a pension pot to live on as you’d hoped?

Wouldn’t it be better to be ‘in the know’ about how much your existing pension(s) will leave you to live on? And to learn about some better options from an expert pensions adviser?   

Our tailored approach to our clients’ financial needs and future aspirations puts us in a great position to be able to help them review and choose the best retirement pension strategies.

And being a Senior Partner Practice of St. James’s Place – one of the UK’s leading wealth management organisations – means that we work with a carefully considered panel of providers that can offer pension and retirement planning options that a DIY search simply won’t be able to access. 

If you would like to discuss your pension options, don’t hesitate to get in touch with us for our expert pension advice and guidance.

Email us at michael.sage@sjpp.co.uk or call 0191 7314 539 to book an appointment – we’ll be more than happy to help.

Please note that St. James’s Place also manufactures some pensions options.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

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