A round-up of all the pensions and retirement content you need to know about.
Sometimes it seems like saving for retirement and then planning how to use your pension once you retire is easier said than done. The pension freedoms have introduced new complexities, while rising life expectancies mean we need to be sure we’re prepared for a long life – you don’t want to be left having to fund retirement years you hadn’t accounted for.
There are also psychological factors at play that can serve us well day-to-day, but which also influence the way we save, spend and invest.
Women have an even greater challenge. They need to save 5-7% more on average to enjoy the same level of income as men in retirement1, are likely to be paid less than their male colleagues and often assume the lion’s share of caring responsibilities with a hit to their earning and saving power.
So in support of Pension Awareness Week, which runs from 14 to 18 September, we’ve compiled an essential guide to help get you on track to achieving the retirement you deserve.
How much do I need to save for retirement?
Figuring out how much you need to save for retirement doesn’t have to be overly complicated.
The Pensions and Lifetime Savings Association has developed a set of Retirement Living Standards that aims to help people picture what kind of lifestyle they could have in the future, and outlines how much they’ll need per year to maintain that lifestyle – minimum, moderate or comfortable.
You can also use your age as a guide and aim to hit certain benchmarks in your 20s, 30s, 40s and beyond. The earlier you start putting money away, the better, and knowing how much you should be saving at each stage of your life can serve as a good starting point.
And don’t forget the importance of keeping track of your pension savings, wherever you are in life. It’s estimated that there is nearly £20 billion in savings held in 1.6 million lost or dormant pension pots in the UK – that’s nearly £13,000 per pot2 – an amount that can make a huge difference to your retirement.
How can women ensure they’re saving enough?
Women encounter financial hurdles that men don’t – namely the aforementioned pension and pay gaps; plus, women typically live longer than men – underscoring the need for sound, longer-term savings strategies.
Indeed, financial inequality for women starts from the moment they enter the workforce, which is why parents might want to level the playing field by investing a bit more for the girls in their family.
Women also perceive wealth differently, and often have different priorities than men. For example, three-quarters of women don’t see themselves as investors, even when they have a workplace or personal pension3, and 67% say it is very important that their investments have a positive social impact, such as reducing their carbon footprint4.
Even high-earners might not be managing their money effectively. Women are projected to own 60% of the wealth in the UK by 20255, yet they still could be missing out on tax allowances, or not saving enough into their pension.
Women would also benefit from regular check-ins on the state of their workplace or personal pensions, especially given the coronavirus-related turmoil of the past several months. If they’re no longer in work, have been furloughed or have been working reduced hours, the lockdown no doubt had an impact on their retirement pot.
Already in retirement? You still need to actively manage your pension pot
Growth is the priority in the lead-up to retirement, and while most people previously faced a largely binary choice at retirement, there are now a variety of decisions to make and scenarios to weigh up – all with the end goal of making your pension income last as long as you need it.
This is important because we are living longer, and we tend to underestimate how long we are likely to live. A study by the Institute for Fiscal Studies found that on average, people in their 50s and 60s underestimated their chances of survival to age 75 by about 20 percentage points6.
Staying invested in retirement also means being exposed to new risks that could derail your plans if not taken into account. These include longevity and inflation risks, sequencing risk and pound-cost ravaging.
Continual oversight and ongoing management of your pension pot are essential: changes in personal circumstances and/or the macroeconomic environment can affect your ability to achieve your retirement goals. Regular financial health checks and professional advice will ensure your investments reflect your risk tolerance – and that your strategy matches your personal wants and needs.
Whether you’re just starting to save into a pension, have a retirement plan in place, or are managing your retirement income, McGrady Financial Services Ltd can help to develop a strategy that works for you.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
1 Understanding the Gender Pensions Gap, Pensions Policy Institute, July 2019
2 ‘Lost pensions: what’s the scale and impact?’, Pensions Policy Institute, October 2018
3 The Wisdom Council survey of 2,250 UK women, Yes She Can, November 2019
4 WealthiHer Report, 2019
5 Centre for Economics and Business Research, 2005
6 Subjective expectations of survival and economic behaviour, Institute for Fiscal Studies, April 2018