Are you contributing enough to your pension to fund your desired retirement?

Your pension contributions are the bedrock of your retirement plan. Ideally, you need to contribute enough to build a pension pot big enough to fund a comfortable retirement.

Pension contributions can be made by you, your employer, and the government – by way of tax relief.

Make the most of your Annual Allowance

Tax relief can be an easy and valuable way to boost your pension contributions. One of the best ways to make the most of the opportunity is to take full advantage of the Annual Allowance.

The Annual Allowance is the amount that you can save into your pension each tax year (6 April to 5 April) while still being able to benefit from relief. In the 2022/23 tax year, this stands at £40,000 or 100% of your annual earnings, whichever is lower. The Annual Allowance is expected to remain at this level in the 2023/24 tax year.

You can continue to pay into your pension once you hit this limit, but you'll no longer be able to do so in a tax-efficient way. Any contributions over your Annual Allowance may incur a charge – the “Annual Allowance charge” claims back any tax relief you receive on contributions over this limit.

How much do you need to save?

A recent study reported by ProfessionalAdviser has warned that retirees will need to have saved £470,000 if they want to have a comfortable retirement and have sufficient funds to cover care costs.

The cost of living crisis has led to an increase in costs of care. And the report goes on to say that, compared to five years ago, today a retiree would need at least £85,000 more to self-fund their retirement and care costs.

While there's rarely such a thing as perfect, to accrue a pension pot that will deliver the retirement you'd like to enjoy, you need to consider the following questions:

What does your desired retirement lifestyle look like?

If you have an extensive bucket list of exotic locations and exciting adventures, you'll need a bigger pension pot than if you simply want to spend quality time with your family and tend to your garden.

How long do you expect to be retired?

Think about what age you'd ideally like to retire at and set a target retirement age. This should help to focus your pension calculations.

Next, consider what your life expectancy might be. According to the Office for National Statistics (ONS), over the last 50 years, life expectancy at birth has increased by 11 years for males and 8 years for females.

On average, a 65-year-old man could expect to live to almost 84 and a woman could expect to live to around age 86.

If you want to retire at age 55, there’s a good chance that your pension pot may have to last for more than 30 years.

Looking into your family history could also help to give you a better idea of how long you are likely to live for.

And remember that you may live a lot longer than your calculated life expectancy, so be sure to factor this possibility into your plans, too.

While a longer life is good news, if you haven’t planned for spending extra time in retirement, you could risk running out of money.

What expenses might you face in later life?

In light of increasing life expectancy, it’s important to factor in additional expenses for medical fees and care costs when considering your retirement budget.

Do you have other sources of income you will use to fund your retirement?

Consider how the State Pension, property and other investments you own could bolster your retirement income.

To achieve your life goals and enjoy the retirement you’d most like, it’s vital to consider all the possibilities so you have enough time to build the funds you need to live the comfortable life you desire.

Cashflow planning can help you determine how much you should save now for your desired retirement

If you’re unsure how much you should be saving each month, working with an expert can help.

Your financial planner will talk to you about all the questions above. With a good understanding of your life goals, they can use cashflow planning software to help you understand how much you need to save to enjoy your ideal retirement.

The clever software can help determine:

• How your existing pension fund(s) might grow over time
• How your savings could be affected by rising inflation
• When you may be able to retire, based on your income, existing pension savings and prospective future contributions
• How altering (either increasing or decreasing) your monthly pension payments could help reach your goals tax-efficiently
• How much you need to sustain your retirement lifestyle and pass wealth on to the next generation.

Saving for your retirement is a long-term commitment. The earlier you start to contribute to your pension and the longer you continue, the more money you’ll have available to fund the lifestyle you desire.

Get in touch

To find out more about how we can help you with all aspects of your retirement planning, please get in touch.

Email info@lebc-aspira.com or call us on 0800 055 6585.

Please note:

The information contained in this article is based on the opinion of Aspira and does not constitute financial advice or a recommendation to any investment or retirement strategy.

You should seek independent financial advice before embarking on any course of action. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.