One in three older people leave retirement planning until two years before stopping work or don’t prepare at all, though experts believe you should start getting your finances in order in your 50s.
More than half of people who have recently retired would also warn the next generation to do more planning, to save harder now and to consider carefully how you access pension pots, according to new research.
Covid-19 and the economic downturn make it more important than ever to plan ahead, according to the Government’s free Money and Pensions Service which surveyed 2,000 people aged 50-70 about their pensions.
Looking ahead: More than half of people who have recently retired would warn the next generation to do more planning
MAPS suggests five key steps to get started early on, plus a final checklist of what to do in the last couple of years before retirement below.
This is Money has a guide to what to do at the 55, 65 and 75 age milestones to make your retirement comfortable here, and see below for how to sort out your pension if you fear it is falling short.
There are more than over 16million 50-70 year-olds in the UK and three quarters of them have some form of retirement savings outside of the state pension, according to official statistics.
But more than a third of over-50s leave retirement finance planning late or won’t plan at all, and only 7 per cent feel fully prepared, the MAPS research found.
When it asked about the Covid-19 pandemic, 36 per cent of 50 to 70-year-olds said their finances had been affected, and 18 per cent had decided to delay tapping their pensions.
What do retirees recommend younger generations do?
MAPS surveyed more than 700 people who are part or fully retired about what advice they would give people born between 1965 and 1980 about their finances.
1. Save more towards your retirement (60 per cent)
2. Start planning retirement finances earlier (56 per cent)
3. Take time to decide on how you will access your savings pots (45 per cent)
4. Find out more on how to make the most of your pensions (44 per cent)
5. Seek guidance on how to best organise your retirement finances (41 per cent)
Some 14 per cent are accessing their pensions sooner, mostly to bolster their own day-to-day finances but some to support family members and friends.
MAPS notes that 2020 will see some 940,000 people, the highest in nearly two decades, reach the age of 55.
This is when you can first access your pension savings without facing a punitive tax bill.
What early planning for retirement should you do?
MAPs suggests taking the following five steps to prepare your finances.
1. Track down your pension pots and check their value
With the average person having 11 jobs in their lifetime, it’s easy to lose track of any pensions you may have had in the past.
If you think you’ve lost a workplace pension, the first port of call should be your former employer, or you can contact the provider if you remember the name.
If you can’t find details of either, you can contact the government’s Pensions Tracing Service.
Once you’ve tracked down your pots, you can check your statements or ask your scheme or provider for an up to date valuation of how much you have saved.
2. Think about your living costs in retirement
Draw up a budget for your expected income and spending as early as possible to give yourself a greater sense of control over your situation.
The Money Advice Service has a free budget planner tool to help you plot this out.
3. Think about what age you’d like to retire and to access savings.
For some people, this may not necessarily be at the same time.
Some people may have already chosen a retirement age with their provider, but if your circumstances have changed and you plan to retire earlier or later, you may wish to reconsider how your savings are being managed to ensure your money is working hard for you.
It’s helpful to also check your retirement income using the Money Advice Service’s pension calculator if you’re going through any changes.
Carolyn Jones: Given over a third of over-50s have had finances affected by Covid-19 and we’re facing a recession, people should not delay or skip planning retirement finances
4. Consider if your spouse or family need to be factored into your plans.
If you wish to provide for family members with your pension savings, this could impact the choices available to you when it comes to accessing your money.
5. Make a free Pension Wise appointment.
Available to people aged 50 and over, specialists will explain the pros and cons of the options for accessing your pension savings, the tax implications, how to shop around to get the best deal, and how to avoid pension scams.
Telephone appointments are available on 0800 138 3944 and the website is here.
What should you do in the run-up to retirement?
MAPS recommends doing the following in the last two years before retirement.
1. Work out your likely retirement income
– Trace any lost pensions
– Find out how much you might get from your defined contribution pension – check your annual statement or ask your providers for a new one to see how much savings you have built up.
– Get a state pension statement here.
– Check what other savings and investments you could use towards your retirement
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
2. Draw up a budget to calculate your costs in retirement
– Look at where your income comes from and how you spend it
– Think about what changes you might need to make to live comfortably
3. Don’t take risks with the pension savings you’ve built up
– Avoid pension scammers by being suspicious of any unsolicited contact about your pension
– Check who you are dealing with and don’t be rushed into making any decisions
4. Decide when to start taking your pension
– Check with your pension scheme provider when you said you wanted to start taking your pension and if this is still what you want to do
– Think about how you want to take money from your pension, if it’s a defined contribution pension scheme. (Read a This is Money guide to your choices here.)
Carolyn Jones, head of pensions policy and strategy at Money and Pensions Service, says there is no set date for when people should start planning retirement though your 50s are a perfect time.
But she notes: ‘The earlier you do it the easier it will be to bridge any gaps, and the more likely you are to feel prepared and comfortable in retirement.’
Regarding the current coronavirus crisis, she adds: ‘Given over a third of over-50s have had their finances affected by Covid-19 and we’re now facing a recession, we’re urging people not to delay or skip planning their retirement finances – whether you’re thinking of retiring later or bringing it forward.
‘Your pension is likely to be one of the most valuable assets you hold so it’s really important to start planning early to make sure you make the best choices based on your circumstances.’
Jones goes on: People who have had an appointment with our Pension Wise specialists feel more confident, informed and prepared when it comes to how they will access their pension savings.
‘In 2019/20, more than half of appointment customers said that getting guidance either changed how they accessed their pension, or how they intend to do so.’
How to sort out your pension if you fear it’s falling short
If you are worried about your pension and whether you will have enough, read a full 10-step guide to sorting it out here.
To get started, investigate your existing pensions. Broadly speaking, you need to ask schemes the following:
– The current fund value
– The current transfer value – because there might be a penalty to move
– Whether the pension is in a final salary or defined contribution scheme
– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund
– The pension projection at retirement age.
You can use a pension calculator to see if you have enough – find This is Money’s here.
You should add the forecast figures to what you anticipate getting in state pension, which is currently around £9,100 a year if you have a full National Insurance record.
Get a state pension forecast here.
If you are tempted to merge your old pensions, check out some tips on how to decide here.
If you have lost track of old pensions, the Government’s free tracing service is here.
Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.
These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent.