How much pension do I need?

How much pension do you need to retire on in the UK?

The minimum amount you need to retire in the UK could be thought of as the amount of the full state pension which is currently £179.60 per week at age 66. This figure is considered enough to meet essential living expenses but does not cover living accommodation costs such as rent or mortgage payments. In the UK, the social security system is a safety net for those who find themselves with little or no resources to fund their retirement lifestyle.

However, the amount you need to retire comfortably will naturally depend upon the retirement lifestyle you plan for and whether you are a single person household or a couple sharing the bills. So, it is very important to think about this carefully and well in advance of the day you intend to stop working for a living.

A financial planner will analyse your current financial position to check you have the resources to meet your retirement goals and develop a plan to help you get to where you want to be. Working out your annual income requirement for 10-, 20- or 30-years’ time is part art form part science.

This is a long-term plan therefore it needs to be reviewed regularly to help you stay on track to achieve your goals.

A pension calculator is a tool used to take a snapshot of where you are now with your pension pot or where you need to be in x number of years’ time. It can help you work out what your pension contributions need to be and what pension income you might receive in x years’ time. Certain assumptions are used about investment growth, inflation, longevity, and such like which are bound to change over time. Another good reason why plans need regular reviews and appropriate adjustments made to those assumptions.

Many people accelerate their pension savings rate as they approach the last 10 years of working life because they realise, they may not have enough savings for a comfortable retirement lifestyle. To work out how much pension you need is better answered by How much money do you need to retire? Will you retire at state pension age or sooner? Perhaps much later in life or never!

An HMRC recognised UK pension scheme is the most tax-advantaged way of contributing relevant earnings to your pension savings which should therefore be an essential part of your retirement saving planning. It makes good financial sense to contribute as much as you can afford from your salaried taxable income to your pension savings and benefit from the tax relief. If you are self-employed like millions are in the UK, then you can still make tax-efficient pension savings from your earnings by using personal pensions.

If you need help working out the right amount of affordable contributions for your circumstances, it is best to consult a financial planner, or a financial adviser authorised and regulated by the financial conduct authority for help and advice. Start saving as early as you can in a workplace pension to reap the benefits of compounding positive investment returns over many years.

The current pension Annual Allowance is £40,000. To contribute a higher amount than this you will need to meet certain conditions defined by the carry-forward rules. Even non-earners such as homemakers can contribute up to £3,600 gross per year (£2,880 net of basic rate tax). It is possible to gift this amount to a child or grandchild for their private pension every year and benefit from the annual gifting exemption for inheritance tax purposes. It’s a win-win situation for those able to take advantage of long-term financial planning.

The pensions Lifetime Allowance (LTA) caps the upper level at which tax-free cash can be withdrawn from your pension savings which includes the total taken across occupational and private pensions. The LTA is also used at age 75 to make a tax charge for the excess amount over the LTA if you have one. Age 55 is currently the earliest age at which tax-free cash can be taken and this age limit will rise to 57 in 2028.

To help you make the right decision for your final salary pension, we will take you through a clear, simple, transparent, and regulated four step process. 
If you would like to explore and discuss the options for your final salary pension transfer, - helping you make the right decision on your pension 
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