Where will your retirement income come from, and how can you boost it?
Thursday, October 29, 2015
Find out how you can supplement your retirement income with our easy guide.
Did our retirement saving calculator come up with the sort of figure you were expecting for your yearly living costs? Or were you perhaps surprised to see how much extra you're going to need each year on top of your state pension?
It’s easy to assume, for example, that because you’ll have paid off your mortgage, you won’t need much money to live on – but the figures can be daunting when you examine them more closely. For example, if you wanted an extra £10,000 a year on top of your pension, you’d need a pension pot of around £167,000 (this is based on This Is Money’s pension pot calculator which assumes an annuity of around £6,000 per £100,000 saved).
If those kind of figures are just plain scary and you’re one of the many who doubt that your pension is actually going to provide the income that you’d like when you hit, say, 65, don’t panic. The best thing you can do is face up to the problem, find out how with our handy tips.
We’ve also got some affordable options you can explore to help boost your retirement income…
Still got a few years before you retire?
The most obvious answer is to pay more into your pension, and there are tax advantages if you do. But it doesn’t suit everyone: what if you haven’t got a pension, you can’t afford to pay more in, or you simply don’t feel comfortable with the level of risk associated with the pensions market?
Find out more: Risk and pensions
Risk is one of the key reasons for the changing face of the UK pension market over recent decades, as pension values vary with the ups and downs of the stock market. Back in the 1970s and ‘80s, pension schemes were more generous, largely thanks to the defined benefit (or final salary) schemes run by employers. In these schemes, employers guaranteed retired employees an income for the rest of their life, so they were committed to providing a certain pension regardless of how the stock market performed.
In the 1990s, this system began to change as companies switched to USA-style ‘defined contribution’ schemes, which guarantee the level of contributions employers will pay in rather than the final payout. This saved employers money and switched the stock market risk to employees.
These changes meant that savers have to carry more of the pension burden themselves, and are also more dependent on stock market performance (and, until the recent pension changes, on annuity rates).
Meanwhile, the State Pension has been put under strain by a growing older population, coupled with increased life expectancy – according to the Office for National Statistics the number of people living in the UK aged 100 and over rose by 73% between 2002 and 2012. The result is that the state pension has to support more people, for longer – and it’s feeling the strain.
All in all, it’s a perfect storm and explains why pensions may no longer be guaranteed to provide enough to live on in retirement. There’s no easy answer to this situation, but it’s easy to see why the Government has had to increase the State Pension age and why people are worried about saving enough to retire on.
Other ways to save for retirement
While a pension is one of the most tax-efficient ways to save for your retirement, there are other tax-effective long-term savings options too. Stocks and shares ISAs are one example and there are also tax-exempt savings plans offered by friendly societies.
A long-term savings plan might suit you if you’re worried about putting all your retirement eggs into one basket. It could be run alongside a pension and, whether you use this additional pot to boost your income, treat yourself to a special holiday, help your grandkids out or to simply provide an emergency fund, it could prove a useful pot of money.
Equally, these plans might provide a solution if you haven't got a pension and are looking for an affordable alternative.
Our survey revealed that many people look beyond pensions when it comes to saving for retirement – apart from additional long-term savings, other options included property and inherited wealth (although relying on an inheritance is risky as this isn’t a reliable source of money – there may not be as much, or even any, money left to inherit).
Find out more: What is a Tax Exempt Savings Plan?
These are unique to friendly societies (they’re not available from high street banks), and provide a tax-free savings option in addition to plans like ISAs. They also provide a minimum return (see 'Find out more: Long-term, guaranteed, savings plans’ below).
Did you know there’s an affordable way to get a guaranteed pot of money?
When there are many question marks around retirement, it might be reassuring to have something more definite to look forward to. One way to make this happen is to consider a savings plan that provides a guaranteed or a minimum return on your investment. This way, you know that you have a definite sum to factor in to your plans.
Don’t think you can afford it? You don’t have to pay in huge sums to be able to make a difference – just putting away as little as £25 every month in a low-risk plan could give you a guaranteed pot of money in say 10 or 20 years’ time. It may not be a huge sum, but knowing you can rely on a few thousand pounds coming in at a known point in time could give you more peace of mind.
Find out more: Long-term, guaranteed, savings plans
Foresters Guaranteed Savings Plan
A Guaranteed Savings Plan is pretty much what it says on the tin: you pay in a defined amount every month (from £50 to £100) for a fixed term – from 10 to 25 years. As long as you keep your payments up for the full term of the plan, you get a guaranteed return with in-built growth, which will be more than you have paid in.
For example, if you were to pay £100 a month into a Foresters Guaranteed Savings Plan for 20 years, you would be guaranteed a sum of £25,799. That is the money you’ve paid in (£24,000), plus the guaranteed in-built growth of £1,799.
Plus, there is potential for additional growth on top of the guaranteed sum (£25,799 in the above example) by way of bonuses that may be added annually, as well as a possible additional final bonus when the plan matures. These could make your money grow further, but their addition is not guaranteed.
Find out how much you could put by for your retirement with the Foresters Guaranteed Savings Plan.
Foresters Tax Exempt Savings Plan
Again, this type of plan guarantees a minimum return, as long as you pay in for the full term of the plan. They’re an affordable way to save as you pay in just £25 a month for anything from 10 to 25 years.
Find out how much you could add to your retirement pot with the Foresters Tax Exempt Savings Plan.
Are there other ways to keep money coming in after you’ve retired?
You could simply carry on working for longer - our survey revealed that attitudes to working past retirement are changing, find out more here. However, if you feel that you’ve done your time and are looking forward to an altogether more leisurely existence there are ways to make your money go further.
If you’re happy to devote some time to other money-making activities, there are plenty to choose from. From taking in ironing to filling out online surveys, there are many opportunities to bring in a bit of extra cash. You could also try bartering skills to save spending money – a spot of babysitting in return for some help with home maintenance, perhaps.
Find out more: Foresters Welfare Benefits Helpline
Our helpline gives all Foresters Friendly Society members access to confidential and impartial information about entitlement to welfare benefits. The telephone helpline service is provided by the Citizens Advice Bureau.
For more information about Foresters member benefits click here.
Make sure you get everything you’re entitled to
It’s worth remembering that there are literally billions of pounds of benefits for older people that go unclaimed every year, according to Age UK, so it’s worth checking whether you’re eligible for any yourself.
If you're interested in finding out more from Foresters Friendly Society, sign up to our quarterly e-newseltter for savings-related news and tips, competitions and more.
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- Inflation could reduce the value of your money over time.
- Tax rules may change and depend on individual circumstances.