Saving for retirement can be a daunting prospect. There are many different planning options and the amount needed to save comes down to the individual. According to one study, just 12% of under 55s have set a target for their pension pots—meaning around 18 million UK adults could potentially be heading for a retirement nightmare.
That's why we are here to break it down with 3 things you need to know about retirement planning.
How to Save Money while in Work?
Taking full advantage of workplace pensions and auto-enrolment is a simple way to build up your savings. Workplace pensions are pensions arranged by your employer, where all employees aged 22 to the state pension age are entitled to one if they earn more than £10,000 per year.
Many companies pay between 3% and 10% of your annual salary each year. When combined with your contributions it can top with up to 15% of your annual salary.
The amount paid out to you when you retire is determined by how much you've paid in and for how long, as well as the amount of profit generated by the provider's investments and any costs deducted by the provider.
How to Save Money if you’re Self Employed?
If you aren't eligible for a workplace pension, you have the ability to apply for a personal pension. This works in the same way, as you can make regular payments, or a lump sum to a provider of your choosing and they invest on your behalf.
This allows the pension provider to offer a wider range of investment options, which gives you more choice than the usual workplace pension. The obvious downside is that this option doesn't come with employer contributions.
Protect yourself from scammers
According to Action Fraud, victims of pension scams lost £50,000 on average last year. The unfortunate reality is that inquiring about your pension can bring its own risks.
Some of the key warning signs to look out for include being called out of the blue. If you are discussing retirement planning, be vigilant that reputable advisers won't call you at random. This is commonly known as the first step of “time-limited offers” where victims are pressured into making poor ‘investments’.
Not only does this risk losing some of your pension money, but you can also incur large tax penalties from HMRC if you release some of your pension before the age of 55.
It's always worth checking the FCA register of regulated companies (fca.org.uk/register), and the FCA warning list of known scam firms (fca.org.uk/scamsmart/ warning-list).
If you have any questions about retirement planning, get in touch today.