Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: No-one wants to reach retirement rueing missed opportunities to boost a pension pot, and yet almost four in ten of us do. By far the most common regret is not having planned far enough in advance. It’s an understandable impulse to put it off when you are struggling in the here and now and retirement seems many years away. However, the closer you get to retirement, the less you can do if you find you aren’t on track for the lifestyle you hoped for.
It’s a similar case with boosting contributions – one in ten retired people wish they had set aside more for their pensions when they had the chance. Even boosting contributions by relatively small amounts over the years can have a big impact on how much you end up with, so increasing contributions every time you get a pay rise for instance can have a big impact.
A lack of understanding around investments and the different retirement options was also highlighted as areas retirees would revisit if they had the chance. It’s true that the retirement landscape can feel very complicated and many may feel they’ve either taken too much risk or not enough when it comes to their investment strategies.
The same could be said of the retirement options out there. For instance, some may have opted for an annuity for all their income without realising they could have left some of their pension in drawdown. Even worse, they may have taken the annuity on offer from their pension company without shopping around for a better income. Others may have taken all their tax-free cash at once and put it in the bank rather than having a plan for the money. A self-employed person may have found pensions too inflexible and not realised how a Lifetime ISA may have been a better fit for them. Taking the time to plan ahead reduces the risk of knee jerk actions that you may come to regret.”
Three steps to a no regret retirement
What does your retirement look like
The best way of knowing if you are on track with your retirement savings is to visualise what you want your retirement to look like. Do you want to travel the world or are your aspirations more modest? At HL we used our Savings and Resilience Barometer to model what a moderate retirement lifestyle might cost. We calculated around £25,000 for a single person and £36,480 per year for a couple. This is a good rule of thumb but it’s important to realise your retirement is personal to you. Once you have an idea of what you are aiming for you can input your details into a pension calculator to let you know if you are on track. If you are, that’s great, but if you aren’t you’ve got time to do something about it.
Boost contributions
It can be easy to set and forget contributions, but if you can hike them every time you get a pay rise or new job this can be a very beneficial and relatively painless way of boosting your pension. It’s also worth checking if your employer will also increase their contribution if you do the same. This is known as an employer match and is a great way of getting more into your pension if it’s available.
Make the most of your allowances
Pensions have a series of generous allowances. You can contribute whichever is the lowest of your annual salary or £60,000 per year to your pension. However, if you earn a high salary or have already flexibly accessed your pension then this allowance could be lower, so it’s worth checking. You can also make use of unused annual allowances for the previous three tax years to really turbo charge your pension. If you have maxed out your own allowances, then you can contribute to your partner’s pension. You can contribute up to £2,880 per year to the SIPP of a non-working partner and they will receive a government top up bringing it up to £3,600.’’
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