Retirement is often associated with greater freedom and the opportunity to enjoy the fruits of decades of work. But for many people, the transition from a regular paycheck to pensions and savings can feel less like a smooth ride and more like standing on the edge of a financial cliff.
A YouGov poll of 6,224 UK adults found that 55% said they were worried they would run out of money in retirement, and of those worried respondents, 63% were under 50.
However, the good news is that avoiding a financial retirement cliff isn’t about being extraordinarily rich, it’s about making informed decisions before and during retirement.
Susan Hope, pensions expert and business development director at Scottish Widows (Scottish Widows/PA)
We spoke to Susan Hope, pensions expert and business development director at Scottish Widows, who shared the following nine practical steps to help you create a pension plan that can withstand life’s uncertainties and give you greater confidence that your retirement years will be defined by peace of mind rather than financial stress.
1. Understand what government pensions and loans you are entitled to
Make sure you are receiving the maximum pension income you are entitled to (Alamy/PA)
“Make sure the cornerstone of your financial retirement income is covered by the government and that you have everything you’re entitled to,” Hope advises. “If you go to the HMRC app you can very quickly find out when your pension age is and what you should be receiving.
“Another important thing to look at on the app is the breakdown of your National Insurance contributions by year.”
Hope recommends going back to your working years to make sure you have credits for each period, because if you haven’t worked due to unemployment, illness or caring for someone, you may be eligible for National Insurance credits.
They help ensure that you are entitled to certain benefits, most notably the State Pension, during periods when you were not working, earned too little for National Insurance or claimed certain benefits.
2. Find lost or missing pension pots.
There are many missing pension pots waiting to be claimed (ALAMY/PA)
“I have a huge concern in my head about the £31 billion of untraceable pensions we have in the UK,” says Hope. “Take a look at your LinkedIn or your CV and make sure none of that £31 billion is languishing somewhere because it’s your money you need to have.”
Once you know the name of your previous employer or your old pension provider, you can use the government’s free pension finder service to help find lost pension pots.
3. Look at the different levels of retirement living in the UK.
“I think it’s very useful to look at the standard of living in retirement in the UK because it will give you an idea of how much you’ll need in retirement, depending on what type of pension you want to live on,” recommends Hope.
Three levels of retirement living in the UK: minimal, moderate and comfortable.
“Ask yourself: what do I want my pension to look like? I would compare these three standards to a Butlin’s, Barcelona or Barbados pension,” says Hope.
4. Maximize employer matching
Start Early (Alamy/Pennsylvania)
“You can’t beat double your employer contribution to your retirement pension. So the sooner you start taking advantage of your employer’s free money and investment growth, the better,” says Hope.
“Get there early because the snowball effect of compounding investment growth, compound interest and the magic of employer contributions is unparalleled.”
5. Review all options
Homeowners can free up some of their property value (equity) to supplement their retirement savings (ALAMY/PA).
“Take a holistic look at your finances,” Hope advises. “There’s definitely leverage to consider equity release, but retirement is really complicated and there are so many options.
“It’s important to take a holistic view of your home, investments and pensions, and to be able to use leverage to be both tax efficient and make the most of your assets.”
6. Use benefit and pension calculators.
“Benefit calculators like the Turn2us benefit calculator are really important,” says Hope. “The Lloyd’s banking website also has a benefits calculator to help people understand whether they are eligible for specific benefits,” recommends Hope.
Scottish Widows also has a pension calculator that can help you understand in less than five minutes what kind of lifestyle you could live in retirement and show you the approximate value of your pension savings.
7. Use apps to get a financial overview
“I think it’s really important to have an app for your finances right now,” says Hope. “I like to have a single customer view where you have a bank account and also an IRA and a pension.”
8. Create a budget before and after retirement.
Creating a before-and-after budget is essential for a secure retirement (Alami/PA)
Early planning and sticking to a budget prevents overspending.
“Before you retire, I would definitely create a pre- and post-retirement budget because some expenses will go down and some won’t,” says Hope.
9. Get clear on your priorities.
Everyone will have different priorities in retirement.
“Ask yourself what is more important: income stability, income flexibility, or my family’s legacy? Once you can answer this question for yourself, it will determine how you manage your budget and spending,” says Hope.
“Some people will want to break the bank, some will want to get as far away as possible, and some will just want to really enjoy the longest vacation of their lives.”
Visit the Scottish Widows Pension Calculator to see if your pension plans are on track.