This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).
Many people are faintly aware that they should be saving towards their long term future. Why are pensions so often recommended by financial advisers as a way to achieve this? The answer is fairly straightforward. In 2019-20, a pension offers a tax-efficient long-term savings plan, with other important benefits depending on your scheme.
Unfortunately, effective pension planning is not as straightforward as simply picking a pension scheme and setting money aside each month. You need to also address important questions which can affect your plan, such as:
- What kind of future retirement lifestyle do I want, and how much will that cost?
- Am I currently on track to achieve the savings I need to cover those costs?
- How much do I currently have saved, and should I track down and combine any pension pots from earlier in my career?
- How much State Pension have I accrued, and what else can I do to get the best deal?
Let’s take some of these questions in turn. If you have any questions or would like to discuss your own retirement strategy with us, then book a free financial consultation on 01869 331469.
#1 Establish your target
A robust pension plan requires making an informed estimate of how much you need to save for retirement, by a specific date (e.g. by the time you reach age 68). This isn’t as easy as it might seem, and many people greatly underestimate how much they are likely to need in retirement.
Everyone is different, so it’s best to sit down with a financial planner to determine forecasts in your own particular case. Recent research by Fidelity suggests that a target of “seven times your annual income” in pensions savings is a good starting point. For someone on £30,000 per year, therefore, a £210,000 pension pot might be a realistic (if somewhat simplistic) goal.
#2 Assess your situation
At this point, you may be worried that you are nowhere close to the Fidelity ballpark saving targets. Personal circumstances really matter here, which is why good financial planning adds great value, as it can establish bespoke and realistic targets. You should not get discouraged, as it is quite possible, for instance, that you have more saved than you realise.
Your planner might be able to help you track down some old, forgotten pensions from previous jobs, and bring these together into a cost-effective pot. You might also be able to leverage other assets, liabilities and income streams to build your retirement fund.
#3 Review your state pension
In 2019-20, the full new State Pension equates to about £168.60 per week (or, £8,767.20 per year). To receive this amount once you reach state pension age, you need to accrue at least 35 years of qualifying national insurance contributions (NICs).
This can be a crucial component of a pension plan. If you are not on track to build up your 35 years of NICs, consider speaking with your financial adviser about how you can achieve this. It might be possible to fill in the gaps in previous years, for example, by making voluntary NICs.
#4 Leverage your allowances
There are some important rules to be aware of when planning your pension. One such rule in 2019-20 is the Annual Allowance, which limits you to a maximum of £40,000 in pension contributions each tax year (or up to 100% of your salary; whichever is lower). If you are an additional rate taxpayer, your limit might be even lower.
If you are thinking about funding your retirement by selling a property or a business, for instance, and putting some of the proceeds into your pension pot(s), then you need to do some careful planning. In 2019-20, it is possible to use any unused annual allowance from your previous three tax years.
Invitation
If you are interested in starting a conversation about your financial plan, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.
Reach us via: 01869 331469
