Our tips to help you make your pension work harder

Let’s face it, with the current cost of living crisis impacting our everyday bills, it’s difficult to prioritise saving for retirement.

A 2023 report on UK employee wellbeing, by LCP, shows:

  • 51% of organisations have seen employees request to reduce their pension contributions.
  • In 2022, UK workers said saving for retirement was their top financial priority. But this goal has now fallen to sixth highest priority, with managing everyday money now top priority.
  • 51% of us aren’t feeling confident about reaching our desired retirement.

My view is that putting off planning could make it more difficult for you down the line. At the very least, paying something into a pension now helps you to build good habits.

With this in mind, here are my tips for how you could get your money working harder – to help you achieve a fulfilling retirement.

1. Start thinking about how much money you’ll need for your retirement

Okay, that sounds tricky to work out. But put down that crystal ball, because Which? have produced some useful figures that can help to give you an idea.

The following table gives you an idea of how much income you might need, as a couple, to achieve different levels of comfort.

Retirement type Amount each year What it will cover
Essential £19,000 Utilities, transport, housing costs
Comfortable £28,000 European holidays and leisure activities
Luxury £44,000 Long-haul trips and a new car every five years

Source: Which.co.uk

Of course your own situation might be very different. If you want support working out what you’re likely to need, our financial advice team might be able to help you plan.

2. The sooner you prioritise paying into a pension, the easier it’s likely to be

If you can find ways to pay more into a pension now, you might be able to lessen the amount you’d need to save later.

This table shows why. It looks at saving into pension from different ages. And compares how much you’d need to save – each month – to reach a certain amount in your pension by the age of 65.

Target value at 65 From age 30 From age 40 From age 50 From age 60
£100,000 £89 £168 £375 £1,475
£250,000 £221 £420 £936 £3,700

How we worked this out:

  • We’ve assumed your pension investment will grow by an average of 5% a year
  • If your investments grow by a lower amount, you’d need to save more to achieve your target.
  • Monthly payments are after tax relief (i.e. gross).

What these figures show is that the sooner you pay more into a pension, the better chance you have of achieving the retirement you deserve.

3. Thinking about your plans now could give you more choice in how and when you retire

We typically think about retirement in all or nothing terms. One day you’re working full time, the next you’ve retired and your time is your own.

For many people, that’s not really how it will work. In fact, November 2022 research by Legal & General shows that one in three over 55s, still working, have chosen to take a phased retirement.

This is where you gradually reduce your working hours, or maybe swap from a full time job to a part-time role. So you can start to enjoy some of the benefits of a retirement lifestyle, whilst still earning money towards your future. You might need to do this for health reasons.

A phased retirement could be a really good option for you

  • Right now, for example, you only start to get state pension when you turn 66 (rising to 67 between 2026 and 2028).
  • State pension could play a really important part of funding your retirement. But you might not want to wait until you’re 66 to retire.
  • So you could choose to phase your retirement by reducing your working hours and start to use some of your pension. But hold off fully retiring until you reach state pension age.

There’s no right or wrong to this, it’s about what’s right for you. And the chances are you probably don’t know what you’d want to do until you’re nearer retirement age.

But it’s another reason to prioritise saving into a pension now if you can, so you can have more financial flexibility in future.

4. It really is worth paying into a pension

Unless you work in the public sector, you’re likely to have what’s called a defined contribution pension. This is a fantastic way to grow your money for the future. And that’s because just paying into a pension should see its overall value grow significantly over the long-term.

The biggest reason for this is tax relief. You get 20% extra added by the government to your pension as a minimum. If you’re a higher or additional rate taxpayer, you can claim even more.

Let’s say you want to save £500 a month into a pension. This table explains how the actual upfront cost to you is much lower, because of tax relief.

Tax rate Tax relief Actual cost to you to save £500
Basic rate taxpayer 20% £400
Higher rate taxpayer 40%* £300
Additional rate taxpayer 45%* £275

* To get this full tax relief, you need to claim the extra 20% or 25% through self-assessment.

If you have a workplace pension, your employer is likely to pay into your pension too. This could further boost your pension pot.

Quite simply, a pension is a fantastic product that could make such a difference to your future. Offering you greater financial security.

It’s a really good idea to check your pension contributions. And think about if you could afford to put more away. Depending on their situation, we find some of our customers also benefit from setting up extra personal pensions.

5. Review your pension plans to see if you can get your savings working harder

Are your pension savings invested in a way that’s right for you? Chances are it’s in a provider’s default scheme, which might be all well and good.

But there could be other, more effective options available – to help you get your money working harder. It all depends on your circumstances, including appetite to risk.

If you’ve already retired, you might be wondering how you could make your pension last. Or if you could even be spending more of it now.

We could help you to review your arrangements and build a plan that suits your circumstances.

6. Ask yourself – do you have sight of all your pension plans?

Here’s some good news: you might be further along than you think. The chances are you’ve changed jobs and employers over your career, meaning you may have been paying into different pensions.

Latest figures show there’s 1.6 million lost or forgotten pensions in the UK, adding up to over £19 billion in savings. This might include some of your money. For more information visit the article on the Unbiased website.

At Skipton, we offer a pension review as part of our pension planning service – where we contact your providers for you. We can check the details of your pensions. And advise you what you could be doing with them to support your overall plans.

7. Consider how to make the most of your pension – and your other savings and investments

Full retirement means you no longer have a regular employee wage coming through. Apart from the state pension, it’s down to you to use your savings, investments and pensions to fund your lifestyle.

In a nutshell, you need to be thinking about:

  • the fun stuff, like more holidays or fulfilling a lifelong dream
  • the regular stuff, like paying your bills and enjoying your free time
  • the important stuff, like keeping ahead of inflation. Plus provisions for any later life needs, such as long-term care.

It sounds difficult to work out, doesn’t it? And to make it even more confusing, there’s important tax considerations around using your pension. Only 25% of your pot is tax-free to withdraw. You pay tax on the rest, in line with current income tax rates.

Start feeling better

You work hard for your money. You make sacrifices along the way. So you deserve to feel excited about retirement. That’s where we come in. Our financial advisers are here to help you plan for a relaxing retirement and to allow you to look forwards with confidence.

  • Recommendations personalised to you
  • No upfront fees. You only pay a charge if you act on advice
  • No pressure to take up our advice – that’s a promise.

March 2023 research by Standard Life underlines just what a difference financial advice could make.

They found people who use a financial adviser expect to retire three years earlier than those who don’t get advice.

That’s because the advice leaves them with the confidence of knowing they have the finances to fund their retirement lifestyle for longer.

Important information

  • Investing does mean placing your money at risk. You also need to be willing to commit your money for at least five years.
  • The tax treatment of savings, investments and pensions depends on personal circumstances. Tax rules may change in the future.
  • Our financial advice service is available if you can invest or reinvest at least £20,000, or can commit to investing at least £500 per month. If you’d like advice on your current investments/pensions, the minimum value required is £50,000 (cash and value reviewed).
  • The opinions and information provided in this article are not advice. If you are looking for advice, you should speak to a financial or tax adviser.

Free Pension Health Check for Skipton Members

If you have a Skipton savings account or mortgage, we can help you find out if you’re on track to achieve the retirement you want.