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 Oxfordshireshire).
Planning for retirement in the UK used to be far less complicated. Many people could simply work with one employer throughout their lifetime, and expect a final salary pension to carry them through retirement. Since the 2015 Pension Freedoms, however, the options have widened, bringing more flexibility as well as complexity.
Our financial planning team at WMM offers 4 ideas here for building a strong retirement fund. If you’d like to discuss these matters with us or talk through your own retirement strategy, then get in touch to arrange a free, no-commitment consultation:
Call us on 01869 331469
#1 Basic State Pension
In 2019-20 the state pension is £168.60 per week, but this is set to rise to £175.20 from April the 6th 2020. For those retiring with the full new state pension in 2020-21, therefore, you can expect to receive £9,110.40 per year.
This is unlikely to cover all of the expenses involved in a comfortable retirement. However, it will certainly help. To gain access to the full new state pension you’ll need to accrue 35 qualifying years of national insurance contributions.
#2 Leveraging ISAs
Under current rules for individual savings accounts (ISAs), you can save up to £20,000 per tax year into your account(s). ISAs can be a useful financial planning tool for retirement since any interest, dividends or capital gains earned are tax-free.
The Lifetime ISA, moreover, can be of particular interest since the government will add 25% up to £4,000-worth of savings, although that bonus comes with lots of strings attached. ISA’s do come with their downsides, one being that any retirement savings are made after tax.
#3 Workplace pensions
At the time of writing, you are allowed to save up to £40,000 per tax year into your pension(s); or, up to 100% of your salary (whichever is lower). A pension is specifically designed to facilitate retirement savings, and they come with attractive tax benefits.
Basic Rate taxpayers can expect 20% tax relief on their pension contributions, whilst for those on the Higher Rate it is 40%. This potentially adds a significantly boost to your retirement savings. However, you do need to plan your contributions carefully when leveraging pensions.
You will not be able to access the money, once committed, until you reach age 55 and this age is due to rise soon. Your money would typically be invested in funds which may vary in performance and fees. Here, a financial adviser can help you ascertain the suitability of your pension, and where any better options on the market might suit your needs better.
For some people, property can be an important component of their retirement plan. If you have a portfolio of owned properties, which you can rent out to tenants for instance, then these could form a valuable income stream. Be careful, however, about carrying several mortgages (e.g. Buy To Let) into retirement, as this can cause a risky imbalance between assets and liabilities. Recent changes in taxation of second properties and rental income allowances have made this option more expensive i.e. less efficient than it was.
Of course, another important way property can help to fund retirement is via equity release or through downsizing. In some cases, the latter option might be sensible for older people who cannot maintain a large property, and need to move somewhere smaller (releasing liquid funds in the process).
However, be careful about making downsizing or equity release the central pillar of your long term retirement strategy. Remember, this makes you highly dependent on the property market, and you might struggle to find a buyer. Equity release can also affect your estate plan, eroding the inheritance you might hope to give your children one day.
If you are interested in starting a conversation about your financial plan, then we’d like to help you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.
Call us on: 01869 331469