Even if it is not currently top of your agenda, being able to retire when and how you would like, is sooner or later likely to be one of your most important financial objectives. But achieving this goal takes planning and perseverance.
Unless you are in the fortunate position of having a final-salary pension scheme which is not underfunded you will almost certainly need to augment your state pension. You could spend a third of your life in retirement. Will you find those years the golden times we all dream of, or a constant struggle to pay the bills?
Your state pension is worth about £6,030 at current rates, assuming you have a full national insurance record. For those reaching state pension age from 6 April 2015, this requires 30 years’ contributions. If you have not yet retired, we can help you check your record and see if any gaps can be filled.
A review of your state pension entitlement will also indicate what you may expect to receive as state second pension, SERPS and graduated pension. The Government has announced that from 2016 a flat pension of around £150 per week will be available to all, with entitlement through SERPs and S2P abolished.
The state pension age (SPA) is also changing and it is far from clear that we have the final definitive position.
- By 2016 the state pension age for women will have risen to 63
- Between April 2016 and December 2018 state pension age will rise to 65 for women
- After this, between December 2018 and October 2020, the state retirement age for both men and women will rise to 66
- From 2026 to 2028 the state pension for both men and women will start rising to 67
- Both men and women will see the state pension age rise to 67 towards the end of the next decade
- After this the government will review the state pension age every five years based on life expectancy. Based on figures from DWP this could result in the state pension age increasing to 68 from the mid 2030s and to 69 in the late 2040s.
The Government has announced that the state pension will in future increase by the highest of price inflation, earnings inflation and 2.5%.
According to government estimates, the gap between how much people are saving and how much they need to save to ensure a comfortable retirement is over £60 billion. It believes that 13 million people – nearly half the working population – are not saving enough for their retirement.
Lifetime savings limits
The rules place an overall lifetime limit on tax-advantaged pension funds of £1.25 million. There is a tax charge where the fund value is in excess of the limit and for excess contributions in a year over the annual limit, which is now £40,000 (or higher if there is unused allowance in the previous three years).
|Annual amount (input amount)||£40,000*|
|Lifetime allowance||£1.25 million|
* This amount may increase if there are unused allowances from the previous three years. However, it may reduce to £10,000 if the drawdown of pension rights are exercised.
If you contribute more than £40,000 this year to your pension, you may be able to benefit from unused relief in the preceding three years. We can check this for you. Because your pension input period may not be aligned with the tax year, it is very important when planning pension contributions that you are aware when your pension input period ends. If you have more than one pension arrangement, you may well have different pension input periods.