Retirement UK: How savers could end up with ‘surprisingly large pension pot’ explained

From travelling the world to caring for loved ones, retirement comes in an array of forms. In a bid to help people visualise the cost of the retirement lifestyle they may want, last year, Retirement Living Standards were launched by the Pension and Lifetime Savings Association (PLSA) – detailing the estimated annual cost for “minimum”, “moderate” and “comfortable” retirement lifestyles.

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With 2020 having well and truly begun, some people may be looking to ensure their money is working for them this year.

And, in a bid to help people get in the saving mindset, Claire Trott, Head of Pensions Strategy at St James’s Place, has shared her top tips for securing a better financial future.

Ms Trott told Express.co.uk: “The New Year, and turn of the decade, presents us with a moment to stop and think about our future, and our future finances.

“Like our health, most of us are now turning our thoughts towards whether we are setting ourselves up well for the future.

Don’t forget that the money you pay into a pension scheme gets tax relief…

Claire Trott, Head of Pensions Strategy at St James’s Place

“While reaching that £600,000 target (the average amount needed for a moderate retirement according to the PLSA) may appear challenging at first, putting even a small amount of money aside every month can result in a surprisingly large pot over of a long period of investment time due to the magic of compound interest.

“Don’t forget that the money you pay into a pension scheme gets tax relief; if your rate of income tax is 20 percent your pension provider will automatically claim it as tax relief and add it straight to your pension pot for you, and further claims can be made for those on tax rates of over 20 percent.

“A key part of this process is not to see retirement as something so far in the distance as to be irrelevant to you.

“Instead, see those long timeframes as your greatest ally in securing a strong pension pot by the time you retire.

“Many people are willing to change the habit of a lifetime, but simply don’t know where to start, so here are five ways you can get the ball rolling this year.”

DON’T MISS

Controlling spending

“Step one is simply to take control of your spending, whether you’re at the start of your savings journey or looking to safeguard your retirement pot for future use,” Ms Trott said.

“Make a budget for each month, keep an eye on your outgoings, and make sure that these match up to what you’re spending.

“You don’t have to make sweeping changes and huge cutbacks – but the little savings here and there can soon add up.”

Saving money

“Once you have control of your budget and spending, take time to think about what to do with the money you’ve saved,” suggested Ms Trott.

“For example, this could mean increasing your pension contributions – early saving can reap big rewards and set you up for retirement from the get-go.”

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Reviewing options

Having saved the money, Ms Trott suggested savers looked into their options ahead of the end of the tax year – which falls on April 5.

“Get your affairs in order ahead of tax year end,” she said.

“Make the most of the reliefs and allowances available on tax-efficient investments – review your ISA and pension contributions and maximise your annual allowances so that you benefit from the available tax breaks and reap the rewards later in life.

“Tax planning is best put into practice well before the end of the financial year so that you’re in a better financial position when the deadline arrives.”

New habits

“Try to create a new habit, we all know that coffee a day soon becomes a habit that is hard to break,” Ms Trott said.

“Make payments to you pension or ISA before you start spending each month, so you don’t miss it and it becomes a positive habit rather than a negative one.”

Retired? Thinking about pension pots

Ms Trott commented: “If you’re already retired, think about your pension pot, how much you’re drawing from it and when.

“Increasing life expectancy means retirees need to plan to stretch retirement funds for longer, yet according to St James’s Place research, only one in ten (12 percent) retirees are specifically spending less to ensure their pension pot is extended, and over half of retirees (57 percent) say that their approach to spending has remained the same since retirement.

“Meanwhile only a small number of retirees (16 percent) have a percentage of their pension fund invested in stocks to provide growth during their retirement.

“It’s well worth seeking financial advice for more clarity and guidance on dealing with pension decumulation, preparing for the entirety of retirement, and easing the pressure on finances later in life.”

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