Thinking of life after retirement should be exciting, but navigating the various rules and regulations that come into play regarding your hard-earned funds can be confusing, especially if you have started your new chapter abroad.
It’s crucial to boost your pension savings to guarantee an enjoyable retirement, it will be easier to save enough money the younger you start.
This is because your funds grow dramatically over time due to cumulative interest. However, if you’ve put off starting, avoid becoming stressed. There are still several things you can do to get back on track. In this article, you can read our detailed instructions to ensure you are prepared for retirement.
When should you start saving into a pension?
To improve your retirement savings, you should start contributing as soon as possible. Compared to someone who starts saving in their 40s, someone who starts in their 20s will need to set aside a significantly smaller percentage of their income.
Regardless of age, it’s still not too late to begin making retirement plans. You can increase your income levels after quitting working, even if you start saving later. Act quickly if you haven’t already; the sooner you start putting in, the easier it will be to make up the difference.
Each year, you can add money to your fund, up to a maximum annual allowance of £60,000, or you can save the equivalent of your salary or £3,600 each year, it just depends on whichever is higher. It’s a tax-effective way to save money, and thanks to government tax relief, your savings will grow quicker than you would expect.
How to reach retirement prepared
Determine the type of income you’ll need when you quit working before calculating how much you’ll need to save. From person to person, this will differ. For instance, if your annual income was £20k while employed, you probably won’t need £50k after you stop. But a person making £100k a year in their work may discover they need far more.
As a general guideline, most experts agree that you’ll require an income of 50–66% of your pre–retirement pay. Therefore, to be comfortable, you should recieve between £15 – £20,000 if you earn £30k per year.
But since everyone is unique, you might require more or less based on your future ambitions. For instance, you’ll need more money than someone who owns their home outright if you plan to rent in retirement.
If your children are older, you may need to set aside money to help with university costs, or if they have graduated, you may get by with less money. It would be best to consider all your savings and income sources. For example, if you are a landlord, your rental income may be used to supplement your savings, reducing your overall retirement requirement.
Prior to retiring, you should make an effort to pay off your debts, otherwise you risk having limited money for maintenance from your retirement income. Continue working to pay off your debts if you don’t have the savings to cover them, or you risk defaulting.
How much do I need to save to reach my pension goals?
You may calculate how much money you’ll need to save to attain your goal after knowing what income you want when you quit working.
Using an internet calculator is the simplest way to accomplish this. The retirement income you’ll receive is calculated using these helpful tools by adding up your state entitlement and the amount you intend to save each month.
If you want to know more about this topic, read our dedicated guide to saving for retirement here.
What type of pension should you get?
Make sure you save correctly, try to verify that you will receive the maximum state pension before considering adding more funds to a workplace plan, if available, or a private scheme.
If you are employed by an organisation, you might be able to enrol in their workplace plan. You should be registered in the workplace programme automatically if you are over 21 and make more than £10k from a single company each year.
The greatest method to save for the future is through one of these low-cost, well-run plans, which also typically include employer contributions from employees’ employers.
Your company doesn’t have to top off your savings if you don’t make enough money, but many will. If your manager or HR staff hasn’t spoken with you, it’s worth asking them for more details.
Self-Invested Personal Pension (SIPP)
An entirely self-managed personal pension, known as a SIPP, includes decisions regarding investment strategy and fund positions.
It is a self-invested personal pension offered to UK pension holders. If you live outside of the UK, you may also be eligible for a SIPP. As a low-cost savings method, they give those in the UK a wider choice of investments and control of where their funds are allocated.
A SIPP can sometimes facilitate an overseas pension transfer where a QROPS (Qualifying Recognised Overseas Pension Scheme) doesn’t meet individual circumstances. As such, many funds use this to access various currencies – often making them an excellent fit for those whose retirement journey is taking them abroad.
Find out more about Self Invested Personal Pensions (SIPPs) here.
What is the lifetime pension allowance?
Your lifetime allowance is the maximum amount you can save in your UK pension before facing an extra tax charge. In other words, there is a limit on the total of tax-relieved monies accumulating in your pot over time.
Now this limit is significant and potentially costly if you run over it. If your total benefits are taken above the lifetime allowance, you could face a hefty tax charge of 25% or even 55% on higher amounts – without immediately realising it.
As such, it’s an effective way for HMRC to continually generate tax revenue, as all UK-based pensions come within its reach.
The rules for LTA changed this year, you can find out more about these changes in our dedicated Lifetime Pension Allowance guide.
Is it worth starting a pension at 50?
When they turn 50 and realise they haven’t started saving, many people believe it’s too late. However, it can still be among the best ways to invest for your retirement if you can immediately start putting money down into a fund.
With an average State Pension age of 67, even if you do not receive a pension at age 50, you still have 17 years to invest. In that time, a lot can be accomplished. Act now to offer your finances the best chance of growing if you’re close to retirement and haven’t done anything yet.
You can receive tax relief on private contributions in the 2023–2024 tax year up to 100% of your yearly earnings or £60,000, whichever is less. To take advantage of this, you must be a UK taxpayer.
Expats and Pension Rules
If you are a UK expat and want to transfer your pension, several different types of overseas pension schemes are available – including QROPS, QNUPS or SIPP.
If you have a UK pension and want to take full advantage of its potential, a SIPP or QROPS (or Recognised Overseas Pensions Scheme) may be the best option.
HM Revenue & Customs (HMRC) allows UK pensions to be transferred into several overseas schemes. It’s mainly used by expatriates, as it can have tax benefits and enable them to take complete control of their retirement money.
It’s easy to get a no-obligation transfer valuation to see how much your funds are worth and how it might benefit you by transferring to a recognised scheme.
Inheritance tax
Pensions are exempt from inheritance tax upon death, one of their many benefits. This means that your children and grandchildren can inherit them from you without paying for it.
Your beneficiary may withdraw the money as they see fit without paying income tax if you pass away before turning 75. However, they will be required to pay income tax on withdrawals if you are older than 75 when you pass away. The highest income tax rate they pay will be applied to this.
How else can I boost my savings for retirement?
There are of course other things you can do to help if you want to increase your retirement funds.
Work after retirement age. You can contribute to your savings for a longer period of time the longer you work. Additionally, you’ll receive a greater state pension if you do this. Perhaps you should think about taking a phased retirement approach. Or, if it’s feasible, develop a second source of income.
Locate your old pensions. Throughout your working life, you may have accumulated many of them. Finding them might be quite beneficial in boosting your retirement savings.
Ready to find out more about your pension?
Do you need advice regarding your retirement, or are you interested in transferring your pension overseas from the UK? Contact Brite to receive quality expert advice regarding your retirement.
If you have any questions about the recent updates or would like to speak with an experienced investment advisor directly, please reach us here.
