MILLIONS of Brits face a financial crisis in retirement by not putting enough money aside for their pension, but it’s never too late to get your act together.
In a new Channel 5 TV series revealing Britain’s pension crisis, one couple had to live on just £3.50 a day to test how far their savings would stretch.
Unless Rachel Newton and her partner Aaron Ling ramp up their savings and plan ahead for when they stop working, they will have just £24 a week to spend on food.
The Britain’s Great Pension Crisis, airing today and tomorrow at 9.15pm on Channel 5, comes as research has found that nine million Brits are “sleepwalking into retirement”.
Two thirds of employees aged 45 and over face poverty in old age unless they act soon.
Yet it’s never too late to start saving for retirement, but it’s best to do so sooner rather than later.
How much you need to save for a comfortable retirement depends on where you live, whether you’re single and what kind of retirement you want.
Below we explain everything you need to know about saving for retirement and how to make sure you have enough once you stop working.
Understand where you start
If your current pension pot is small, you’ll first need to work out how much more you need to save.
If you want a comfortable retirement, you’ll need to build up a pension pot of £587,116 per person – £355,856 if you’re in a couple, research found in October.
This is if you want to turn your pension into an annuity, which pays you a guaranteed annual income for life in retirement.
An annuity isn’t always the right option for every in retirement – you could leave the cash invested or take out lump sums as and when you need to.
But if an annuity is right for you, trade body the Pensions and Lifetime Savings Association (PLSA) worked out how much you’d need to save to have the lifestyle you want in retirement.
For a comfortable retirement, the PLSA says you’d need to spend around £33,000 a year as a singleton or £47,500 as a couple.
This would mean you can enjoy some luxuries, such as regular beauty treatments, theatre trips and three weeks in Europe a year.
You could also afford a weekly food shop of £65 and could spend up to £150 a month on clothes and shoes.
And you’d also be able to afford proper home improvements with a kitchen or bathroom replacement every ten or 15 years.
While, if you’re only aiming for the minimum then you need to spend £10,200 a year if you’re single or £19,200 as a couple.
You can check out more details on how much money the various lifestyle changes require here.
If you’re panicking about how much you’re on track for, don’t forget to factor in the state pension.
This is rising by 3.9 per cent in April, giving pensioners an extra £343 a year.
You can find out what age you will start to receive that via the Money Advice Service calculator.
Join your employer’s workplace scheme
Since 2012, all staff aged between 22 and state pension age who earn more than £10,000 are automatically enrolled into a pension scheme by their employer.
So if you are employed, staying in the workplace pension scheme is the best way to help fill your retirement income gap.
There are minimum contributions that you and your employer must pay, and these are being gradually increased over time.
Since April this year, a minimum of 8 per cent must be paid into the pension, with you contributing 5 per cent and the employer paying at least 3 per cent.
Your minimum contribution applies to anything you earn over £6,136 up to a limit of £50,000 (in the tax year 2019/20).
Maximise your contributions
If you’re already a member of a workplace scheme, boosting your contributions to it is another option.
Many employers match the contributions their employees pay, so if you pay more, they will do the same.
Ex-pensions minister Steve Webb, now director of policy at Royal London, told The Sun: “What many people don’t realise is that if they choose to put extra money into a pension their employer may also put more in.
“This can double the value of your contribution over night and is a really good way of building up a pension pot more quickly.”
In fact, by boosting your monthly pension payments by 2.5 per cent you could retire eight years early, according to an expert.
Set aside any extra money you’re given towards your pension
If you’re struggling to cut down on your spending to save into your pension, then you should make the most of a pay rise, Mr Webb told us.
He said: “It’s always a bit painful setting money aside for later when you’d really rather spend it now.
“But the easiest time to save more is when you’ve just had a pay rise.
“This is because you haven’t got used to spending the extra cash.
“So a top tip is when you get a pay rise put a bit extra aside for yourself straight away in your pension – it’s much easier than cutting out the nice things in life that you enjoy on a regular basis.”
What are the different types of pension?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (Sipp) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it so it’s compulsory for employers to automatically enroll you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. The minimum contributions have risen to 8 percent, with employees now paying in 5 percent and employers contributing 3 percent. This is up from the 5 percent of contributions workers and companies were required to pay in last year, where employees contributed 3 percent and employers 2 percent.
- Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year on retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension. But they’re not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £168.60 a week and you’ll need 35 years of national insurance contributions to get this. You also need at least ten years’ worth of national insurance contributions to qualify fullstop.
- Basic state pension – If you reached the state pension age on or before April 2016, you’ll get the basic state pension. The full amount £129.20 per week and you’ll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension.
Set up your own personal pension
If you’re self-employed or not eligible to join a workplace pension scheme then you can set up your own personal pension plan.
The options here are an ordinary personal pension, a stakeholder pension (which have capped charges) or a self-invested personal pension (SIPP), where you usually have a a wider range of investment options but fees can be higher.
Just bear in that with most personal pensions you’ll have to lock away the cash until you’re 55.
If you’re ok with this, you’ll need to look into the options to find out what’s best for your needs – for example, is there a minimum amount you can save each month?
Also compare fees and charges to ensure you’re getting the best deal – most pension providers will charge some kind of annual fee, whether that’s a percentage or set charge.
You can use a comparison tool, such as Money.co.uk to help look into your options.
Track down your pensions
We have an average of 11 jobs during our working lives, which makes it easy to lose track of employee pensions.
In fact, savers lose up to £300 a year from their pensions due to frequent job moves, research found last year.
Personal pensions can also get lost when you move house, change your name or don’t update your personal details.
No wonder then that there is currently more than £5billion in forgotten pension schemes in the UK, according to the Pension Tracing Service.
But there are several ways you can track this money down – the Pension Tracing Service is free and you can start the process online.
You will then be sent documents which you need to sign in order for it to search on your behalf.
Or you could also try the government’s free pension tracing service.
If you need more help, it could be worth speaking to a regulated financial adviser who will go through your options and help you choose the best one for you.
You’ll have to pay for trouble, but advisers must go through their fees and charges with you before you commit.
You can find one using the Money Advice Service’s search tool.
Another option is to check with your employer as many offer sessions with financial advisers to help you plan for your future retirement.
Pensioners are being urged to check if they’ve got a missing state pension after one retiree found he had a pot worth a whopping £132,800.
Meanwhile, one retired couple may have to sell home of 40 years due to a little-known pension rule.
As of November 1, pension savers above 50 get “wake-up” alerts on retirement pots.