Many people dismiss their pension until middle-age, when retirement suddenly seems like a much more realistic prospect. But pensions aren’t as frightening, or complicated, as they might seem. Essentially, paying into a pension pot is an important consideration when ensuring that you have enough to live on after retirement.
The maximum basic state pension for the tax year 2013-14 isn’t much – just £110.15 per week – and most people need more than this to maintain the standard of living they desire. That’s why company and private pensions matter. If you’re reaching retirement age and you’re worried your pension pot isn’t big enough, it’s not too late. There’s still plenty you can do to ensure that you have enough to keep up your quality of life.
Make a pension checklist
First, it’s important to know exactly how your pension is working for you, how much it’s likely to pay out and what you can do to bolster your pension fund. If you’re not sure how to start doing this, consult an independent financial adviser or look for help online from reputable money advice sites, like The Pensions Advisory Service and The Money Advice Service. The Money Advice Service, for instance, offers a handy pensions checklist, together with worksheets you can use to make your prospects clearer.
One of its main suggestions is to consult your pension statements to forecast your likely income after retirement. If this isn’t at the level you’re hoping for, you have some options: for instance, you can start paying more into your pension or delay the age at which you retire. Depending on your individual circumstances, you may have further choices; be sure to consult a financial advisor before making any hasty decisions.
You could also start shopping around for an annuity. In simple terms, an annuity is what you purchase with your pension pot when you retire. It then pays you an income for the rest of your life. Once you’ve decided on an annuity, you generally can’t change your mind so it’s crucial to get the decision right. If you have recurring health problems, your annuity may pay out higher amounts since it may be assumed that your lifespan is limited. Conversely, if you decide that your spouse should receive your annuity after your death, your payments may be smaller during your lifetime. So it’s worth considering all these factors and doing your research before you retire.
How to maximise your post-retirement income
Martin Lewis of Money Saving Expert has another useful checklist for over 50s nearing retirement. In addition to straightforward advice on pensions, he also lists invaluable tips on how to make your money go further. For instance, if you’re over 60, you can get a third off train travel with a Senior Railcard. Over 60s can also enjoy free public transport with a bus pass in the UK (though this does vary depending on where you live), as well as discounts at some shops, restaurants, travel agents and cinemas.
What’s more, if you’re over 75, you can get a free TV license and if you’re aged over 83, you’re able to claim a free passport. So even if your pension income is eventually less than you might have hoped, you won’t necessarily have to compromise your quality of life.
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