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Back to School is here and, if you have been able to take any time off this summer, there’s also very much the feeling of Back to Work. Many of us really enjoy taking time off, and begin to wonder how we have time to work! Which gets us thinking ahead to the day when we can finally retire. When will that be, and how on earth are we going to be able to afford it?
In this article we explore:
For everyone born after 5th April 1960 the state pension age is 67. And for those born after 5th April 1977 it is likely to rise to 68 between 2044 and 2046.
The current full amount of state pension is £11,502 a year : £221.20 a week. But the actual amount you get will depend on various factors, including the amount of National Insurance you have paid. Depending on your overall income, you may also be entitled to additional Pension Credit payments.
You can check your state pension forecast on the Gov UK website. You may also have the opportunity to fill any gaps in previous year’s National Insurance payments to maximise the amount of state pension you will get.
But if you want more income than your state pension when you retire, how can you make that happen?
As well as your state pension, if you are employed and your employer operates a pension scheme they are legally required to automatically enrol you in this if you earn more than £10,000 per year and are aged between 22 and state pension age.
If you are part of an employer – or occupational – pension scheme, both you and your employer will contribute money into your pension. However, you can usually also make extra payments – either by Additional Voluntary Contributions or salary sacrifice – into your pension scheme if you want to do so.
Paying more into your pension is a good way to save money for the future. Not only does it increase the value of your pension but you will also pay less tax, as pension contributions are taken out of your salary before tax.
Whether or not you have an occupational pension scheme, another option to save money for the future is to take out a private pension. You can make payments into a private pension either by lump sum or on a regular basis. And – the same as for your occupational pension – private pension payments are usually eligible for tax relief.
A private pension can provide a nice little nest egg for whatever you really want to do later in life, and can avoid the need to take out a personal loan to make those dreams a reality.
Another advantage of taking out a private pension is that you can access it earlier than your state pension age : currently from the age of 55, though this will rise to 57 from 6th April 2028.
As well as being able to access your private pension many years before your state pension, you can also withdraw up to 25% of it tax free. Depending on how much money you have saved, this could either provide enough money to enable you to retire early – or at least begin some kind of phased retirement.
Let’s take a look at what phased retirement means.
If you either don’t want to retire early, or can’t afford to, but still want to make some changes to your working pattern as you get older, it is definitely worth considering some form of phased retirement.
Phased retirement is a gradual move away from the world of work towards retirement. It may be, for example, that you reduce the days or hours you spend working, or move to a more flexible working arrangement such as job sharing.
Another option is to change your line of work completely, either doing something completely different and less demanding, or perhaps even starting up your own small business in an area you are passionate about.
Any of the above scenarios can be helped if you have a regular additional source of income, for example from a private pension.
However, even if you are drawing the state pension, you are also still able to continue working if you want to do so. The only aspect to be cautious of is the amount of tax you may have to pay. The full state pension of £11,502 is below the current personal tax threshold of £12,570. So if you just have your state pension, there is no tax to pay. But if you are also working (or have other pension income too) this is likely to take your income above the personal tax threshold of £12,570, and you will start paying 20% tax on anything above this amount.
If you are state pension age but don’t feel ready to retire, you don’t have to take your state pension straight away. You could choose to defer your state pension instead. If you defer it for a minimum of nine weeks, you will receive an additional 1% pension – for life – for every nine weeks you defer. So if you were to defer your state pension for one year, you would get an extra 5.8% in state pension. This currently works out as an extra £667 per year : £12.83 per week.
There is no upper limit on how long you can defer your state pension for.
If you start taking your state pension and then decide you want to defer it instead, you can do this by contacting the Pension Service. However, you can only start, stop and restart your state pension once.
We hope that this article has given you a few ideas as to how to save money towards your retirement, and different options that you might want to consider at the time.
Do check back here soon for more financial and lifestyle tips from Loans 2 Go.
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When will you be able to afford to retire? 
