Retirement planning is complicated so it’s important to get it right! Don’t leave it to chance - take advice.
If you’re getting closer to retirement, there are some common mistakes you’ll need to avoid to help you get the most from your pension pot when you stop working.
Leaving it too late
Ok if you’re reading this and you’re due to retire in the next few years, then yes it might be a bit late. But don’t panic….it’s still better late than never!
However, the earlier you start contributing to a pension, the greater the final pot size will be as you’ll benefit from compound interest and tax reliefs.
Underestimating how much you’ll need and how long you’re going to need it for
Unfortunately, many people massively underestimate how much they’re going to need to maintain their desired lifestyle. If you understand your current monthly budget, it gives you a valuable insight into how much you are likely to need in retirement. If you have a comfortable lifestyle now, you’re unlikely to want a minimum lifestyle later on.
The Pension and Lifetime Savings Association estimate you’ll need at least £23,300 (£34,000 as a couple) a year to maintain a moderate standard of living in retirement and £37,000 (£53,000 as a couple) to maintain a comfortable standard.*
If you plan to retire at 65 and are in good health, hopefully you’re going to live to a ripe old age. This means your pension needs to last around 25-30 years! The longer you leave your money in your pension and continue to pay into it, the higher your income is likely to be when you do take it. And, whilst it’s tempting to take a large lump sum straight away, if you take too much of your pension money early on, you might not have enough later.
Losing track of your pensions
If you’ve changed jobs multiple times throughout your career (and let’s, be honest, who hasn’t?) you’ve probably built up a collection of different pension pots along the way. It’s worth listing all the companies you’ve ever worked for and then cross referencing that against all the pension paperwork you can find.
You can then use the government’s free Pension Tracing Service, to hunt down any missing ones.
Getting scammed
Don’t be one of thousands of people that get scammed by pension fraudsters each year.
If you’re contacted unexpectedly about a ‘pension opportunity’ it’s likely a scam, especially if ‘early access to your pension’, ‘tax loopholes’, ‘cash back’ or ‘high returns’ are mentioned. These are all massive red flags!
Scammers are getting increasingly smart, so you may be contacted by someone pretending to be from the company you’re a customer of. If you’re not expecting a call or if you’re asked to confirm bank or account details, be on your guard.
A genuine adviser won’t ever pressure you to make a snap decision. If we’re going to be really honest, the world of pensions and investments is a relatively slow one and you have all the time in the world to make a decision!
Sticking with the default fund
Your money is generally put into a ‘default’ fund which, by default, is likely to be ‘low’ risk.
Depending on your attitude to risk and the time until you retire, you could consider other fund options. A small change may increase the size of your pension pot.
If you are thinking about moving your pension to a different fund, you should take advice from a professional first.
Relying on ‘just’ pension funds
As well as your private pension, it’s likely you will receive a state pension. However, to get the full amount you need to have made 35 years’ worth of National Insurance contributions. Currently, the full state pension is around £205 per week, which is unlikely to be enough to fund your retirement.
Combining this with your private pensions may still not be enough to keep you in the style to which you’ve become accustomed. This is where other revenue streams, such as your savings, investments or property, may come into play.
Leaving it to chance
Retirement planning is complicated so it’s important to get it right! Don’t leave it to chance - take advice.
A financial adviser will help you make the best possible decisions for your personal circumstances and retirement plans. A decent adviser will cut through all the complexities associated with pension planning and use the benefit of experience to give you the best possible chance of achieving your long-term financial goals.
By Daren Wallbank
*https://www.retirementlivingstandards.org.uk/
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 16/10/2023
