15 February 2024

How to take control of your retirement – Carbon’s top tips

A recent study claims that the pre-programmed increases to State Pension Age (SPA) do not go far enough and that it needs to rise to age 71 by 2050.

Currently the SPA is due to rise from 66 to 67 between 2026 and 2028, rising again to 68 in 2044. The report conducted by The International Longevity Centre (ILC) suggests this is unlikely to be enough to maintain the current ratio of workers to state pensioners. An increase to 70 or 71 by 2050 is more likely to combat the pressure that the UK’s aging population and falling number of workers is putting on state pension funds.

The report highlights the importance of building up a private pension that can be used alongside State Pension to fund retirement spending. It suggests an increase to Auto-enrolment which is an initiative that requires workplaces to enrol their employees into a private pension with minimum contributions from both employee and employer.

Relying on State Pension as your only retirement income is unlikely to be a wise move unless you want to work well into your late 60s, possibly into your 70s! So, what can you do to add flexibility to your retirement plans?

Here are Carbon’s top tips:

  1. You can retire when you want, not just at your state retirement date – A common misconception is that your retirement is specifically linked to your state retirement date. If you have personal savings then you can choose when to retire, plugging the gap until state pension starts by drawing money from other sources such as personal pensions, ISAs, cash or other investments.
  2. Auto-enrol with your workplace pension scheme – it sounds obvious, but by not opting out of your workplace pension scheme, you will automatically save into a pension each month. Not only that, but your employer will also contribute to this for you. Opting out is akin to refusing a pay rise.
  3. Review your investment choice – often workplace pensions invest your money into a default lifestyle fund. This type of fund slowly moves your money into cash as you approach retirement which is unlikely to support a flexible retirement income as you will want the pension to continue to grow throughout retirement. Alternatively, look for a passive, index or evidence-based fund that meets your risk profile, or speak to one of the planners at Carbon.
  4. Budget! – most people have a broad understanding of how they spend their money and how much they have in their bank at the end of the month, but few have a handle on exactly what they spend their money on and where they could tighten their purse strings if needed. As well as helping you plan more effectively for your retirement, being in control of your budget, will also improve your general financial wellbeing.
  5. Make additional pension contributions – if you have spare money at the end of each month, there is no better place to put retirement savings than a pension. You will automatically receive basic rate tax relief in the form of extra contribution i.e. If you contribute £80 personally, the government will top this up to £100 with £20 of basic rate tax relief. Whilst your money is in a pension, it grows tax-free, and you have flexibility to draw money from the pension from age 55 (rising to 57 in 2028). Remember, you cannot access a pension before this minimum retirement age. You can contribute up to £60,000 or your pensionable earnings (salary and bonus but not dividends!), whichever is lowest, and higher earners can also bring forward previous years unused allowances.
  6. Make pension contributions for non-earning family members – non-earning spouses and children can contribute £2,880 per annum, topped up to £3,600 by the government in the form of basic rate tax relief. It is something we write about regularly because after 10 years of doing this with 6% net growth, you could build up a pot of almost £50,000.
  7. Use other tax wrappers – each UK taxpayer has an ISA allowance of £20,000 which is another very tax efficient way to save for retirement. The benefit with ISA over pension is that you can access it tax free anytime rather than having to wait until age 55 (or 57 after 2028).
  8. Make contributions to pension from your business – if you are a controlling director of your business, you can remunerate yourself in many different ways and one viable option is by making a pension contribution. As long as it satisfies accounting rules, this should be deductible for corporation tax purposes. This increases the tax efficiency of a pension contribution by adding up to 25% corporate tax relief to the other valuable benefits. It is worth engaging with an accountant and financial planner such as Carbon who are experienced in dealing with this sort of planning.
  9. Make a plan! – the simple fact is that most people don’t know or have never thought about what retirement looks like for them. A good plan will look beyond the numbers of what income you feel you need in retirement and explore the deeper motivations behind your retirement plans. What is important to you, what makes you happy, and who do you want to help are all good questions to ask yourself.

If you would like to discuss any of the above or start to make a plan for retirement with Carbon, please do not hesitate to contact one of our financial planners.

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.

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