During a time when rising living costs are making even a “moderate” retirement harder to reach, it’s vital people ensure their pension savings are in good shape. Robert Cochran, retirement expert at Scottish Widows, shared five essential tips to help people nearing retirement boost their pots and secure a comfortable living standard.
Mr Cochran said: “Preparing how you are going to afford your later years, before retiring or reducing your working hours ahead of time is essential.
“It’s important to assess what retirement lifestyle you can afford now, and what you need to do to top up your pot, rather than leaving it all to the last minute.
“Retirement planning can feel overwhelming, especially as many think it doesn’t really matter until we’re in our mid-fifties or so; but that’s just not the case. Knowledge truly is power.”
Look at your income options
A key part of retirement planning is carefully considering how to fund later life. Mr Cochran explained the benefits of pension drawdown: “Drawdown allows you to take up to 25 percent of your pension value as a tax-free lump sum while keeping the rest invested. You can take taxable withdrawals from the remaining balance whenever you need.”
However, he warns that withdrawals from a drawdown plan are taxable and count as income.
He also suggested considering annuities, particularly joint annuities, to provide income to a surviving spouse. He said: “85 percent of annuities are purchased on a single-life basis, leaving many widows without income when their partner passes away.”
Know your tax implications
Understanding the tax implications of accessing pensions is crucial. Mr Cochran pointed out that most people can take 25 percent of their pension tax-free at 55, but warned: “If you take out your pension in one go, you could end up paying more in tax. It’s important to plan ahead.”
Factor in life events
Unexpected life events like family changes, property purchases, or supporting loved ones can impact people’s pensions. Mr Cochran suggested making regular contributions, even in part-time work, to keep the retirement fund growing. He said: “Consistent contributions can help ensure you can afford whatever the future brings.”
State pension entitlement
Scottish Widdows’ latest Retirement Report shows that just over half (54 percent) expect the state pension to eventually form a meaningful portion of their retirement income, with three quarters (75 percent) calling it hugely important in helping them pay for everyday necessities so it’s well worth people knowing their entitlement ahead of time.
Typically, people need around 35 years of National Insurance contributions to get the full rate of state pension, which can be built up through work, benefits, or National Insurance credits.
Mr Cochran said: “You can check their projected state pension entitlement and if there are any gaps that you might be able to top up. For instance, if you have been looking after children and haven’t earned over £12,584, you’ll be able to apply for National Insurance credits to cover these years.
“It’s also worth remembering that if you have any gaps in your National Insurance records, you can claim NI contributions going back to 2006 until April 5, 2025.”
Mr Cochran added: “Once you have a clear understanding of your current retirement income, you can still adjust to help it grow. And those last few financial decisions you make, such as how and when you’ll start drawing down your income, how you’ll fund your retirement and any products you may wish to consider, are all key before phasing into retirement. It’s the final home stretch for your finances so it’s essential to make a plan for them early on and all good plans should have a bit of flexibility in them for whatever curve balls life throws at you.”
