A recent LCP report suggests that millions of Brits are making insufficient contributions to their pensions. The report asks whether the minimum auto-enrolment amount should be increased from 8% to 12%.
Meanwhile, the Institute for Fiscal Studies (IFS) has looked at average household expenditure, hoping to map the best times to save for retirement.
Keep reading to find out how Globe IFA can help you put a retirement plan in place that works for you. But first, a look at the findings of these recent reports.
Auto-enrolment: Is 12% the new 8%?
This is the question asked by a recent LCP report looking at the impact of “lower for longer” investment growth.
Taking an average worker aged 22, contributing the minimum of 8% into their workplace pension, assumptions from the FCA’s 2007 review would mean our worker could expect a pension pot of around £131,000 in today’s money.
However, using the most recent assumptions from 2017, the same worker’s pot would be around a third lower, reaching only £85,000. To put it a different way, the report states, “a worker today would need to save half as much again – around 12% – as the worker who started work a decade ago, to achieve the same pension pot.”
For those without a long-term pension plan in place, this could have serious ramifications for the size of their pot at retirement.
“Smoothing” spending could mean contributing more in later life
The IFS report – rather than recommending an auto-enrolment minimum contribution rise – suggests paying more later in life.
It argues that worker’s wages generally rise as they get older and that, therefore, it makes sense to contribute more to a pension later in life.
The report also states that households with children are likely to spend more, and therefore pension contributions should increase after children move out.
Other factors, such as paying off a mortgage or having a student debt written off, might also mean it’s time to increase your pension contributions, according to the report.
Globe can put a retirement plan in place that works for you
At Globe, we can help put a plan in place that is as individual as you are. You’ll need to think about the type of lifestyle you want to live in retirement, and how much that will cost.
Here are three simple ways to make sure you have sufficient funds to live your dream lifestyle in retirement.
1. Start early
While it’s true that you might have more disposable cash in later life, you should also start contributing as soon as possible.
Even paying the minimum auto-enrolment amount begins to build your pot and allows you to start making the most of compound growth.
It is unlikely all your pension income will come from the same place so be sure to consider other savings and investment vehicles too. Some products, like ISAs, are tax-efficient and could provide a great way to supplement your income in retirement.
2. Make the most of employer contributions
Many employees were forced to opt out of their workplace pension last year as the coronavirus pandemic took hold. This could have long-term consequences.
Even paying the minimum amount means taking advantage of both your employer’s contribution and tax relief.
For the 2021/22 tax year, the minimum contribution is 8%. Your employer contributes a minimum of 3%, leaving you to pay 5%. You may find, though, that if you increase your contribution your employer will increase theirs too.
You also receive a top-up from the government. If you’re a basic rate taxpayer, you receive a £20 top-up for every £100 you contribute. Higher- or additional-rate taxpayers receive basic rate relief too but can claim further relief through their annual tax return.
3. Speak to the experts
If you can afford to pay more than the minimum auto-enrolment contribution of 8% that’s great. So too, if you find yourself with more disposable income as you approach retirement.
The important thing, though, is understanding the retirement lifestyle you want, and a plan in place that gives you the confidence that you will get there.
That is where Globe IFA can help. Not only will we help you put a retirement plan in place, but we will also provide regular reviews to ensure you remain on track to meet your goals, giving you control over your retirement.
Get in touch
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.