Confused.com looks at ways to save for retirement
We spend our working lives looking forward to the day we can relax and retire, but before bowing out of the job market, it’s important to be financially prepared. So get ahead of the pack with Confused.com’s guide to getting the most out of retirement…
The best laid plans
The earlier you retire, the more money you’ll need to sustain an enjoyable lifestyle. So first, work out an average expenditure then assess the different income options available: these can include pension plans, savings, ISAs, investments, life insurance policies or benefits.
Claiming a pension
There are three different types of pension available:
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State pensions
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Company pensions
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Personal pensions
Anyone who’s made National Insurance contributions is eligible to claim State Pension - after 65 for men and 60 for women (rising to 65 in 2010). The payout depends on the size of the contributions.
There are several benefits if you delay claiming state payments. Wait five weeks and earn a higher pension; wait 12 months and choose between extra weekly pensions and a one-off taxable lump sum when you do finally claim.
Many companies also offer employers the opportunity to join a pension scheme. Part of their salary will automatically be paid into the pension and a nominal amount contributed by the employer.
Alternatively, there are a number of different personal pension plans available from banks, building societies and life insurance companies. Some schemes allow you to start taking your pension from the age of 50 (increasing to 55 by 2010) and to take part of your pension fund as a tax-free lump sum.
Stakeholder pensions, a flexible type of personal pension, allow you to start and stop your contributions as and when you want.
It’s also worth noting tax relief is available on most contributions. For every £80 that goes into a basic-rate taxpayer's personal or stakeholder pension, the government contributes a further £20. Higher rate taxpayers can claim the extra tax back.
If you’ve lost track of schemes taken out with previous employers, The Unclaimed Assets Register has a database of unclaimed life policies, pensions, unit trust holdings and share dividends drawn from many companies. You’ll be charged a fixed fee.
Make a claim
Over two billion pounds of state benefits go unclaimed by people over 60 each year. You may be entitled to help with healthcare, travel and home improvement grants so it’s worth investigating. Nearly half of all pensioners are entitled to pension credit, which tops up any existing income. This guarantees everyone over the age of 60 an income of at least £124.05 a week if you’re single and £189.35 for a couple.
Savings and investments
You can top up your income with investments but bear in mind this may reduce your entitlement.
Write a list of all your accounts and trace lost savings accounts through the British Bankers Associationand Building Societies Association (both free). You can also trace lost National Savings and Investments by downloading a form on their website www.nsandi.com.
Alternatively, think about a longer-term investment. If stocks and shares are too risky for you, consider National Savings and Investments financial products, which are backed by the government. As a result, any money you invest is totally secure and some schemes are even tax free.
A borrower be?
Consider all your borrowing costs. It may be better to pay off any outstanding loans and credit card debts or consolidate them into one single loan. If you’re still paying off a mortgage, try and find the best deal to suit your circumstances.
If you’re in need of a cash injection, another option might be an equity release. This allows you to sell part of your home or borrow against the value of it. But beware: these aren’t suitable for everyone. They can be expensive and are only available to those with a small or no mortgage.
Opt for an annuity
Some people might choose to convert their money purchase pension into a lifetime annuity. This is a financial product that pays you an income for life in return for a lump sum. This sum is non-returnable and the income paid relatively high. Life insurance companies sell lifetime annuities and you can add different options and get different types depending on your needs and circumstances.
With so many different financial products and pension schemes on the market, it’s important to plan carefully for your retirement. Having toiled hard all your life, now is the time to take it easy and make your money work for you.
