How should I save for retirement?

It’s wise to have savings plans to top up your retirement provision

Do you know when you’ll retire? More importantly, do you know when you can afford to retire? A recent survey conducted by Foresters Friendly Society in association with Mature Times* revealed that two-thirds of respondents aren’t confident that they’ll have enough money to live on when they finish working. And, when you look at the numbers, it’s not difficult to see why.

The State Pension, currently just £6,029 per year, simply isn’t enough to support a comfortable retirement. Even with the addition of a workplace pension or other private pension schemes, the reality for most people is this: If you want to enjoy the retirement you’ve always imagined, you’ll need to have additional long-term savings plans in place.

For example, if you want a long-term savings plan that provides the opportunity for your money to grow, where interest is tax free, but you can still access your cash if you need to, then why not consider a Stocks and Shares ISA?

By taking out a Stocks and Shares ISA as a way to supplement your pension, you can:

  • Pay in monthly, or with a lump sum – currently up to £15,240 in the 2015/2016 tax year. Each April, you’ve a fresh allowance to use, giving you the opportunity to keep topping your ISA up.
  • Once your money is in there, it stays tax-free, year after year. Someone who’d filled their ISA allowance every year since they started in 1999 could now have getting on for £100,000, including interest protected from the taxman**.
  • You can withdraw money from your ISA free of tax, although different providers have different rules and conditions regarding withdrawals and access to your money.
  • Stocks and Shares ISAs are intended to be longer-term investments, which can potentially yield better returns than a Cash ISA.

But remember…

  • Depending on how long you’ve had the Stocks and Shares ISA and when you withdraw money, as with any investment linked to the stock market, there is the potential that you could get back less than you put in.
  • The opportunity for potential growth is dependent on the performance of the Stock Market, and any other asset types your money is invested in.

It’s a lot to think about. But, if you’re considering a Stocks and Shares ISA as a valuable addition to your retirement planning, why not take a closer look?

Please note:

Tax rules may change and depend on individual circumstances.

Inflation could erode the value of your money over time.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

Sources

* The Foresters Friendly Society Long-Term Savings and Retirement Survey was carried out during August 2015 in partnership with Mature Times and completed by 1,489 people.

** Martin Lewis – Six reasons why ISAs still beat other savings accounts

Pension freedoms: what can I do with a lump sum?

A Stocks and Shares ISA could provide a flexible solution

Thanks to the UK pension changes, getting your hands on your pension fund means you now have the freedom to spend it or let it carry on earning interest. It’s a big decision that could have a lasting impact on your golden years. If you’d like the opportunity to do a bit of both, then a Stocks and Shares ISA could be what you’re looking for.

Take it or leave it?

Let’s start with what the pension options are. Essentially, as long as you have a ‘defined contribution pension’, such as an individual or group personal pension or a stakeholder pension (the rules don’t apply to state pensions), and you reach age 55, you could:

  • Leave your pension untouched
  • Take cash out when you want it, but only 25% of each withdrawal will be tax-free
  • Take up to 25% as tax-free cash then use the remaining fund to buy an annuity (a scheme that provides you with a guaranteed fixed income for the rest of your life)
  • Take out your entire pension as a lump sum. If you do this, the first 25% will be tax-free, but the remainder will be taxed as income

Decisions, decisions?

There are many things to factor in when deciding what to do, but a couple of key ones are:

  • You might outlive your pension. If you take too much money out you could find that your fund doesn’t last as long as you do. Plus, although the money may be long spent, it could still be taken into account when determining whether you’re entitled to any benefits.
  • You could pay more tax. The first 25% of your pension is tax-free cash, the rest is treated as income for tax purposes. Take out a large lump sum and it could leave you with a large tax bill you might have avoided if you’d taken the money out gradually.

What’s tax efficient and flexible?

Deciding what to do with your pension fund is a big decision. If you choose to take out some of it and aren’t sure what to do with the money one option to consider is investing it in a Stocks & Shares ISA. Here’s some things to consider:

  • You can pay in lump sums – up to the annual ISA allowance, currently £15,240 for the 2015/2016 tax year. Each April, you’ve a fresh allowance to use which means you can keep topping your ISA up
  • Once your money is in there, it stays tax-free, year after year. Someone who’d filled their ISA allowance every year since they started in 1999 could now have getting on for £100,000, including interest protected from the taxman*.
  • You can withdraw your money free of tax, although different providers have different rules and conditions about when you are able to access your money.
  • A Stocks & Shares NISA is intended to be a longer-term investment, which can potentially yield better returns than a Cash NISA

But remember…

  • Depending on how long you’ve had the ISA and when you withdraw money, as with any investment linked to the stock market, you could end up getting back less than you put in.
  • ISAs provide an opportunity for potential growth of your money but this will depend on the performance of the Stock Market and any other asset types your money may be invested in.

Please note:

Tax rules may change and depend on individual circumstances.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

*Source: Martin Lewis Six reasons why ISAs still beat other savings accounts

When will I have enough money to retire?

And other big retirement questions…

If you have more questions than answers when it comes to planning your retirement, it might feel pretty stressful – but at least you’re not alone, as our long-term saving and retirement survey discovered…

Looking at the results of our Long-Term Saving and Retirement survey, we were struck by the uncertainty many people have about how their retirement will shape up.

For a start, over a third of respondents who were still in employment said they don’t know when they will retire. And while no one would be surprised to hear that 20 or 30-somethings haven’t yet decided when they’ll wave goodbye to their working lives, this includes a third of over-45s, who you might expect to be a little further along in their planning.

It seems unlikely that these people will come to a conclusion anytime soon either, as almost a quarter say they’ll continue to work until they’ve saved enough to retire on, and even more – 27% – say they’ll keep working until they no longer can. That’s not a firm plan, is it?

It’s not as if we’re neglecting to save for our retirement – the majority of respondents (79%) said they had a pension, and nearly half have other plans in place too, to supplement their retirement income. But still nearly two-thirds of respondents aren’t confident that they’ll have enough money to live on when they retire.

There is also uncertainty about whether mortgage repayments and family dependants will be a factor in retirement, which will obviously have a bearing on the amount of income needed. Our survey found that more people expect to be paying off their mortgage in retirement in the future, compared with those who are already retired and still paying a mortgage. Another 20% of respondents don’t know whether or not they will have paid off their mortgage by the time they retire.

An additional finding was that while only 9% of respondents expect they will still have dependants living with them when they retire, 16% of those already retired actually have dependants living with them – perhaps this indicates a certain level of optimism on the part of those who haven’t yet retired!

In all this uncertainty, there’s one thing for sure: the whole concept of retirement is in a state of transition as the average age of retirement is set to rise. But it’s not all bad news by any means: there are advantages to working for longer, and there are options to consider if you’re not sure you will have enough to retire on and want to take action.

Useful links

Find out how your retirement plans compare with the respondents to our long-term savings and retirement survey here.

Work out how much money you will need to fund the retirement you want with our interactive retirement calculator.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

You should also be aware that in some investment conditions and depending on the savings product you have chosen, you may get back less than you have paid in.

*The Foresters Friendly Society Long-Term Savings and Retirement Survey was carried out during August 2015 in partnership with Mature Times and completed by 1,489 people.

When it comes to retirement, is anything guaranteed?

‘When will I be able to retire?’ is a question that people didn’t have to ask in the days of final salary pension schemes. Today, it’s very much on the mind of anyone who is starting to think about what their later life could look like. So, how did we get here?

For most of us, it’s hard to believe that there was a time in the 1970s and ‘80s when company pensions were generous and there were enough people taking early retirement for the Organisation for Economic Co-operation and Development to call it a ‘strong trend’.

Fast forward to now, and our long term saving and retirement survey found that many people thinking about retirement are concerned about having enough to live on when they no longer work.

So how did we get from a trend towards early retirement to wondering if we can afford to retire at all?

The part played by employers

The system has been struggling since employers began to switch from ‘defined benefit’ (final salary) schemes to ‘defined contribution’ schemes back in the ‘90s. This largely shifted the pension burden from employers to employees as companies were no longer obliged to provide a specified pension at retirement.

An aging population and the State Pension

Meanwhile, the State Pension has been under increasing strain as the UK’s population ages and a higher proportion of the population than ever before are claiming the State Pension. Not only that, but as life expectancy increases, retirees tend to claim the State Pension for longer too.

The ups and downs of unpredictable pensions

In a nutshell, the State Pension, currently just £6,029 per year, simply isn’t enough to support a comfortable retirement. The upshot of this is that the onus is on individuals to boost their retirement income themselves.

However, even if you’ve saved diligently for decades, the pension you receive can be dependent on how the stock market has performed, among other things. So, until you retire, you can’t be certain about how much money you’ll actually have to live on.

Even small savings can make a difference

Even if you don’t have pots of spare cash to squirrel away, modest savings can still make a difference to the type of lifestyle you could enjoy in later years.

There are, for example, some affordable savings plans that provide you with a minimum return that is guaranteed. You could use these to boost your retirement income with a guaranteed sum that you can plan around.

Calculate your future

Want to see if there’s a shortfall when it comes to funding the retirement you want? Find out with our handy calculator.

How do your retirement plans compare with the respondents to our long-term savings and retirement survey? Find out here.

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

Basic steps for savvy retirement saving

How will you spend your time when you stop working? By deciding what kind of retirement you want, you can start savvy saving now.

What does retirement mean to you? Do you see it as the end of something, or will it be the start of something new? Will you be happy to wave goodbye to your job, or would you prefer to continue working? Maybe you plan to spend more time with your family, or to take advantage of the opportunity to travel?

There has never been a one-size-fits-all retirement, which is more true now than ever before – as there are multiple options available to retirees than there were in previous generations. Not only is life expectancy longer than it used to be, but we’re staying fit and active for longer – you’ve heard that 60 is the new 40, right?

So, back to that question: what does retirement mean to you? Finding the answer to it is the first step in making it happen. With an idea of how you want to spend your retirement, you can then start to work out how much income you’ll need to make it happen. We all work better when we set a goal – it’s human nature – so picture your ideal retirement and then it should be easier to save for it.

Not sure where to start? From our recent survey, it’s clear that you’re not the only one. Here are some ideas to help you work it out, and get an idea of what kind of income you might need:

  • Will you need to ‘do’ something? More people are working in ‘retirement’, either through choice or necessity, but that doesn’t necessarily mean sticking with what you’ve always done. It could mean starting your own business, finally doing that part-time job in a bookshop you’ve always fancied, or taking on some voluntary work.
  • Will you stay where you are or do you want to live somewhere else? If so, will you downsize and free some money tied up in the house, or do you want to live somewhere that’s more expensive?
  • Do you want to learn something new, or spend more time enjoying your hobbies?
  • Do you want to travel? If so, where to and how often?
  • Do you want to be able to help out your children, whether financially or by providing childcare for your grandchildren?

Working out the answers to these questions should help you start to create a clearer picture of the retirement you would like to enjoy. You need to know what that goal looks like! To help you work out the income you will need to fund it, try our handy retirement calculator.

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

Should you carry on working past retirement age?

Our recent retirement survey showed that many people were planning to work past retirement age, so should more of us be considering this route?

According to Ros Altman, the pensions minister, the answer is a definite yes. She sees the traditional idea of retirement as a complete break from work as outdated and thinks we should be looking at it as a phase of ‘less’ work instead.

“The traditional idea of stopping work as soon as you reach a ‘pension age’, whether that be state pension age, or the age at which a private or company pension starts, is now out of date,” she has said. “There is no official ‘retirement’ age anymore, even though many commentators refer to the State Pension age as a ‘retirement age’”.

There’s much evidence that working later in life is an increasing trend, and our survey certainly backs this up. It looks like there’s a shift away from a standard retirement age and towards whatever becomes practical.

And this might not be a bad thing at all: aside from the obvious financial advantages, research suggests that continued employment (as long as you’re healthy) is good for our health and wellbeing. A report by the Institute of Economic Affairs showed that depression and physical decline are more likely in retirees than those who continue working, and the negative effects increase as the number of years in retirement increases. At the same time, the benefits of playing an active role in society and being mentally active in older age are widely known.

Find out more: Are over-65s choosing to stick with the 9-5?

There are more than a million workers aged over 65 in the UK. This number has increased by more than a third since 1995, but that’s nothing compared with the change coming our way in the next couple of decades.

According to a YouGov survey in January 2015, nearly half of over-50s intend to work past 65, with only 15% of non-retireds saying that they wanted to stop work altogether at that age. That means nearly 5 million over-50s intending to work past 65. The survey also revealed that nearly two-thirds of over-50s don’t believe that working full time then stopping altogether is the best way to retire; there’s a preference for scaling back to part-time work first.

Could there be a retirement revolution under way?

Find out whether you have enough money to retire with our handy retirement calculator or take a look at some top tips for boosting your income, whether you decide to keep working or not, with our handy guide.

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

How to boost your retirement income

Where will your retirement income come from, and how can you boost it?

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.

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, tax free, 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, tax free, savings plans

Foresters Tax Exempt Savings Plan

This type of plan guarantees a tax free cash sum at maturity, 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.

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-newsletter for savings-related news and tips, competitions and more.

Please Note:

Inflation could reduce the value of your money over time.

Tax rules may change and depend on individual circumstances.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

When will you be able to afford to retire?

Will your retirement nest egg really be enough? Or perhaps you’re one of the many planning to rely on the state pension for your golden years, but do you know what it will actually get you?

Use our handy calculator below to work out how much you’ll need to live on and to see if you’re ready for retirement. Then learn more about our long term savings options which can help you prepare for your future.

If you are worried about your retirement plans, you’re not alone. Take a look at the results of our survey to find out how you compare to the average Jo when it comes to retirement savings.

Please Note:

Inflation could reduce the value of your money over time.

Tax rules may change and depend on individual circumstances.

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

Are you an average Jo when it comes to saving for retirement?

If you’re not sure when you’ll be able to afford to retire, even though you may already be saving money for the longer term and have a pension in place, don’t worry – you’re not alone.

There are plenty of others in the same boat, as you can see below….

Our long term saving and retirement survey revealed that there’s a lot of uncertainty around retirement, particularly when it comes to whether we’ll have enough money to live on and when we will actually be able to retire.

If you’re in a similar situation, why not try our useful retirement calculator to work out roughly how much money you will need when you stop work.

You’ll find some handy tips on how to add to your retirement savings as well.

Download or print our Average Jo guide here.

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

How to Boost Retirement Income – Do You Know Your Benefits?

Every year, a staggering £5.5bn of benefits goes unclaimed by older people, according to Age UK1. This financial support could potentially add thousands to your annual income. Here’s how to make sure you, or a parent or grandparent, aren’t missing out.

There are three key benefits that go unclaimed – Pension Credit, Housing Benefit and Council Tax Reduction. Here’s how they work and the financial difference they could make to you.

Pension Credit

  • Around four million people are entitled to Pension Credit but a third of these aren’t claiming2, leaving around £2.8bn unclaimed each year1.
  • While the amount received depends on your income and retirement savings, Age UK calculates that if everyone claimed their entitlement, it could boost their annual income by an average of £1,7163.
  • Pension Credit is made up of two parts – the first is a guarantee credit, which tops up your weekly income to £148.35 for single people or £226.50 for couples.
  • The second part is a savings credit for people who have saved towards their retirement4. This savings element is worth up to £16.80 per week for single people or £20.70 for couples, but may not be available to people who reach State Pension age on or after 6 April 2016.

Housing Benefit

  • Just over £1bn worth of Housing Benefit goes unclaimed each year1, equivalent to an average of £2,444 a year for the pensioners who miss out.
  • Housing Benefit can help towards your rent, depending on your income and savings. Usually if you have more than £16,000 of savings you won’t qualify, unless you receive the guarantee part of Pension Credit5.

Council Tax Reduction

  • More than two million older people didn’t claim their entitlement – this is equivalent to an average of £728 a year for those who didn’t claim1.
  • If you’re on a low income, your council may be able to help you with your Council Tax bill through its Council Tax Reduction or Council Tax Support scheme. This could give you a reduction of up to 100% on your bill, depending on your individual circumstances6.
  • Although Council Tax Reduction was only introduced last year (replacing the Council Tax Benefit on 1 April 2013), an almighty £1.69bn worth of its predecessor, Council Tax Benefit, went unclaimed each year1.

Where to get help

It’s simple to find out whether you, or your parents or grandparents, are missing out.

  • Turn2us is a charity that helps people access benefits and grants. Its website includes a handy benefits calculator that assesses your financial situation and highlights your benefit entitlement.
  • You can also get help and advice on benefits from charities such as Citizens Advice and Age UK.
  • You can contact the government, or your council, directly for Council Tax Reduction.

Support from Foresters

Members of Foresters Friendly Society may also be able to access financial assistance via our range of discretionary grants that can help with the cost of optical and dental care or in times of hardship. Find out more about our Foresters Extras range of member benefits here.

Membership benefits are discretionary and are not regulated by the Financial Conduct Authority and the Prudential Regulation Authority and are regularly reviewed by us to ensure they are relevant to our members.

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

Sources

  1. www.ageuk.org.uk/money-matters/claiming-benefits/unclaimed-benefits/
  2. www.ageuk.org.uk/money-matters/claiming-benefits/pension-credit/what-is-pension-credit/
  3. www.ageuk.org.uk/latest-news/1-in-pensioners-struggling-despite-unclaimed-benefits/
  4. www.gov.uk/pension-credit/overview
  5. www.gov.uk/housing-benefit/eligibility
  6. www.gov.uk/council-tax-reduction