Retirement Planning

A pension scheme is a savings plan designed to help individuals save for retirement. It works by contributing money regularly during your working years, which is then invested to grow over time. When you retire, you can access the accumulated funds as income to support yourself during retirement.

The age at which you can start receiving pension benefits varies based on the type of pension scheme you have. Generally, the UK State Pension can be claimed from the age of 66 (subject to change based on government policy), and private pensions usually have a minimum retirement age of 55 although this is increasing to 57 in 2028. Thereafter, the government plans to keep the minimum pension age around 10 years earlier than the state pension age (i.e. if the state pension age is 68, the minimum age at which an individual can access their private pensions would be 58).

The State Pension is a government-provided pension available to eligible individuals. The amount you receive depends on your National Insurance contributions. As of 2023, the full State Pension is £203.85 per week. This is increased each year in-line with the “Triple Lock Guarantee”. he Triple Lock Guarantee is a commitment by the UK government to increase the State Pension annually by the highest of either the percentage increase in average earnings, the percentage increase in the Consumer Prices Index (CPI), or a minimum of 2.5%.

The main types of private pensions in the UK are defined contribution and defined benefit schemes.

• Defined Contribution Pensions: In a defined contribution pension, individuals contribute regularly to their pension pot, and their employer may also contribute. The accumulated funds are then invested in various financial assets, and the final pension amount at retirement depends on the total contributions made and the performance of the investments. At retirement, individuals have various options, including purchasing an annuity or using pension drawdown to access the funds.
• Defined Benefit Pensions: Defined benefit pensions, also known as final salary pensions, are workplace pensions where the retirement income is based on a formula linked to an employee’s salary and years of service. The pension amount is predetermined and guaranteed, offering a stable income during retirement. The responsibility of managing investments and risks lies with the employer or pension provider.

The amount you should contribute to your pension each month depends on your individual financial situation and retirement goals. Engaging with a financial planner can help determine the answer to this question.

Contributions to pensions often qualify for tax relief, meaning you receive tax benefits on your contributions. The tax relief is based on your income tax rate, making pension contributions a tax-efficient way to save for retirement. Once in a pension, the funds will grow tax-free and when you come to draw on the pension, typically 25% of the value of the pension will be available as tax-free cash.

Yes, it is possible to combine multiple pensions into one. This process is called pension consolidation, and it can simplify management and potentially reduce fees.

You can track and manage your pension investments through your pension provider’s online platform or by contacting your financial adviser. Regularly reviewing your pension’s performance and investment strategy is essential for effective retirement planning.

Automatic enrolment is a government initiative that requires employers to enrol eligible employees in a workplace pension scheme. This helps employees save for retirement automatically, and employers must contribute to the pension as well.

If you change jobs, your pension can typically be left with your previous employer’s scheme, transferred to your new employer’s scheme, or moved into a personal pension. If you become self-employed, you can continue contributing to your pension independently.