Pensions & Retirement

EveryInvestor’s comprehensive guide on everything you need to know about pensions and retirement. Discover the types of pensions and the steps to take before retiring.

They say that human beings stand out from any other species by our ability to think and plan for the future.

While that might be true, almost 60% of working individuals find it challenging to think about or prepare for the future, as they’re continuously caught up in the day to day tasks and toil. Heck, it’s daunting enough to plan on what you need to eat for lunch, let alone plan for the summer vacation you want to go on in six months. How on earth are you supposed to think about something as distant as retirement?

Well, it’s proven that thinking in advance or acting on those thoughts is key to having a comfortable retirement. The central concept, when it comes to retirement and pensions1, is saving cash for future purposes. They’re both critical aspects of a successful and effortless post-work life.

That said, here’s a comprehensive guide to help you learn about the best pension schemes and all the details you need to know about having a successful retirement.

Types of Pensions

There are three main types of pension plans:
  • State pension
  • Work pension
  • Personal pension
With improvement government regulations and the pension market growing, though, today there’s also the private pension plan. It mostly involves you contributing from your earnings, then repaying a private pension after retirement. It’s an alternative to state pensions.

State Pensions

These are mostly regular payments that you can claim when you reach the state pension age2. The amount of cash you get depends on your National Insurance Contribution, with the government influencing your pension payments through the credits you’ve accrued in your life. State pensions are the most significant benefit sector of spending by the Department for Work and Pensions.

Pros

  • When you defer your pension, you’ll automatically increase your overall rate of return by 1% every five weeks. When you do the math, this comes out to over 10% every year – an extremely profitable return without any risk.
  • Nothing and no one will stop you from toiling past the legal pension age. Those additional years of work will not only produce extra years of a profitable salary-based income, but it’ll also continue to increase your overall insurance contributions.

Cons

By deferring your state pension, you’ll get less money upfront. So, if you need the extra funds, you won’t get the chance to reap the rewards of deferring your pension.

Workplace Pensions

A workplace pension is organized through the employer. Thanks to the Auto Enrolment legislation3, it’s not mandatory for your employer to set up a pension plan for eligible staff members, either through their scheme, an independent pension provider or through a government-backed project. Your contribution is directly relative to your monthly income, and you get a tax relief of 20% on your donations.

Pros

  • The workplace pension plan offers you control of how much money you’ll spend once you decide to retire. Your boss also contributes a substantial amount to your pot.

Cons

Taking the workplace pension plan, to some extent, decreases your take-home pay package.

Personal Pensions

Personal pension plans are a defined contribution pension4, meaning that the amount you receive when you retire is dependent on how much you’ve stashed into your pension pot and how well your investments have been performing. You also select the amount you pay into your personal pension, and your lender claims tax relief and adds it to your pot. They’re an ideal option for those who can’t access a company pension plan – like the self-employed. You can get a fixed personal pension pot upon retiring, spend it on an annuity plan, or choose an income drawdown. The lenders offer you this plan alongside a state pension.

Pros

  • It’s perfect for anyone who doesn’t have a workplace pension, like the self-employed or people who take time off to take care of their children or ageing relatives.
  • You get 20% tax relief5 if you’re a loyal and basic-rate taxpayer.

Cons

Personal pensions don’t offer you the benefit of having a bonus of extra money contributed by an employer, and they can, at times, charge you a higher management fee.

Steps to Take Before Going into Retirement

The first thing you have to do is to figure out where you stand with your finances. You must think about how much money you make currently, the amount you have saved, how much time you plan to work for if you plan on switching jobs, and at what age you want to put the pen down.

You Must Run the Numbers

After determining all that, you need to ask yourself vital questions regarding your post-retirement lifestyle. It’s also essential to note that almost 80% of retirees spend about ¾ of their current income. You have to ask yourself questions such as:
  • What’s your plan after retirement?
  • Does it involve going on an expensive vacation, new hobbies, or moving into residential care?
  • Are you planning on moving abroad or in your kids?
  • Will you have higher health care costs or need live-in care?
  • Are you planning on helping your kids pay tuition fees, settle their car loans, or pay off their mortgage?
  • Do you plan on giving large gifts to your friends and family?
When you’ve answered all these questions, you can then have an educated approximation on how much your post-retirement lifestyle will cost you.
The standard NHS healthcare covers you throughout your working years and even after retirement. However, your principal medical concern should be paying extra services that the NHS doesn’t cover. It’s essential to note that even though non-medical services are now being incorporated in NHS, some like the live-in carers and other forms of support need to be self-funded.
During your working years, the government required you to pay into the National Insurance. The National Insurance6 will assist in subsidizing the loss of your income, but it won’t act as a total replacement. Your post-retirement ‘must-dos’ will dictate how much extra funds you need to save.
Debts are frightening. Nonetheless, leveraging finances and amassing debt is a part of life. Whether your debt stems from accruing student loans, purchasing a vehicle, taking out a mortgage plan, it should be your goal to focus on settling off your debt before you start saving for funds for your retirement pension.

Things You Should Note About Retirement

1

Have a Plan and Stick to it

The first thing you need to do is to create a steady financial retirement plan. You have to then (the harder step) stick to it. Saving for retirement does take a lifetime, from your first day of work until your last. Therefore, persistence is the key to ensuring that all your efforts pay off at the end.

2

Own Up to Your Circumstances

You always have to own up to your situation. It doesn’t matter if it’s good or bad. You should know where you stand with your finances. Shying away from your situation or being ignorant of the fact that your financials are suffering won’t help you in any way.

3

Start Early, Don’t Delay

When it comes to pensions, it’s never too early to start planning for your later life. When you invest money, it compounds, thus significantly increasing the longer you invest it for.

4

Over-Plan

No one can predict their future. Retirement isn’t a fixed term, so you need to try to save more cash than your initial plan.

5

Worry Less

It’s always incredible to get the financial advice you need, especially when you’re dealing with something as vital as your retirement. Planning for retirement takes years of work and patience, but it shouldn’t be a scary process. Get yourself a financial adviser or seek advice from friends and relatives, and you’ll feel less anxious – you don’t have to go through it alone.

Frequently Asked Questions

Everything you need to know about pensions and retirement.

Well, you need first to determine how you want to retire, how you want to get paid, and then research on the most ideal on buying an annuity7 to offer you a standard payment plan.

Various plan providers8 offer you different options for receiving your pension. They include taking your premiums in one lump sum, getting monthly payouts, and investing the cash into a fund you can withdraw from.

Pension lenders take many things into account when they’re calculating your pension. They include your age, gender, the size of your pot, the interest rates, and your medical condition. You can also use the pension calculator to figure out how much you’re eligible for.

It’s a tax-free benefit that’s aimed at retirees who are on a low income. It’s means-tested, but if you’re eligible, it can be worth €1000 every year.  

The older you are when taking out a pension plan, the higher the payouts since your life expectancy is shorter.

You don’t have to stick with the same lender. You can transfer to another provider who can offer you better options.

You only pay tax on the income you get that’s above your tax-free personal allowance.  

Contact us about your goals or if you need to chat to a financial adviser.

We focus on creating financial security and building long-term wealth for our clients.