Retirement Planning: A Slow Start Can Be Costly


Planning for retirement is just one area in which, with the benefi t of hindsight, many people wish they’d taken action earlier.


How often in life do we look back and wish we had done things differently? According to a study by Prudential in April of last year, two in fi ve pensioners regret retirement-planning mistakes which have left them struggling fi nancially. Nearly one in fi ve say that they didn’t save enough for retirement, and 15% regret not starting to save earlier in their working lives.


Understandably, many of us still have misgivings about locking our money away for decades – especially if we have more immediate calls on our income. Nevertheless, if we’re serious about planning for the future, we need to put away surplus income today, since doing so funds our lifestyles tomorrow.


Pension contributions attract tax relief on the way in and they accumulate capital gains free of tax once inside. When you access your pension savings, the fi rst 25% is normally tax-free. While you cannot draw on the funds until your 55th birthday, this does protect your pot against the temptation to tap into it until then.


Getting off the mark


How much pension income you need in retirement will be determined by a number of factors, including your health, your living expenses and your desired lifestyle. Unfortunately, there’s no one-size-fi ts-all answer. However, as stated in March this year by the Offi ce for National Statistics, the average worker in the UK earns £26,364 per annum, so a pension income of around £20,000 might seem like a reasonable target for most people.


Assuming you qualify for the full single-tier State Pension of £8,094 a year, you would need to fi nd at least £12,000 a year from your other pensions to achieve an overall income of £20,000 per annum, according to gov.uk in March. Achieving this, however, can be very challenging for those on low incomes, or those with unpredictable earnings – but especially for those who delay saving.


Assuming that the fund would be used to purchase an annuity, someone in their mid-20s who starts saving into a defi ned contribution (money purchase) pension today would need to save around £250 a month to achieve an income


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of £12,000 by the time they reach State Pension age. Someone who delays until their mid-30s would need to put away £420 a month; and a 45-year-old who hasn’t started a pension would need to start saving around £850 a month.*


Playing catch up


The sooner we start, the more choices we have later. The power of compound returns, or gains on gains, means that 10 or 20 years can make a big difference. However, you should never think that it’s too late to start saving, or that you can’t catch up. There are signifi cant opportunities to make up lost ground if you have the available means and allowances.


You can put as much as you want into your defi ned contribution pension, but you’ll normally only get tax relief on savings into your pension of up to £40,000 each year. Pension providers generally claim tax relief for you (called ‘relief at source’) at a rate of 20% and add it to your pension pot, which actually creates a 25% uplift in the sum; therefore £80 becomes £100. Higher rate taxpayers can claim an extra 20%; a £40,000 contribution could effectively cost a higher rate taxpayer just £24,000.


Moreover, you can make use of allowances from the three previous tax years if these haven’t been utilised.


In any case, the fact remains that the best way to secure a comfortable retirement is to save as much as possible as early as possible in your working life, and take fi nancial advice. The longer you delay saving, the harder it will be to build the kind of fund that will see you through retirement.


Please visit my website or contact me to


receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning.


Scott Symes Chartered Financial Planner


01202 951227 07885 899742


scott.symes@sjpp.co.uk www.scottsymeswm.co.uk


* Aegon.co.uk, accessed 20 March 2017; the example is based on a male who pays basic rate Income Tax, buying a single life, level annuity, and where pension contributions are invested in a default equity and bond lifestyle fund.


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