Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “Retirement should be a time when we can enjoy life at a more relaxed pace. You may well continue to work, but it could only be part time. You are probably enjoying more time with loved ones, friends and maybe even a bit more travelling. However, while we might aspire to this, not many of us know how much it’s likely to cost and how much we need to put away to get there – more than one-third of people said they didn’t know how much they needed to contribute to their pension to give themselves a decent income in retirement.
Being in the dark about such a key figure puts us at risk of thinking we are on track when we aren’t. Some may even worry unnecessarily when the reality is that they are saving more than enough. Being aware of what you need means you can put a plan in place to get you there and have the confidence to know you are on track.
Among those who said they knew how much they needed to save, just under one in five (18%) said they thought they needed to contribute somewhere between 6-10% of salary to their pensions. This hovers close to auto-enrolment minimum levels which may prove adequate for some people, but for others will likely be too low. Recent data from HL’s Savings and Resilience Barometer showed that higher earners in particular are at risk of undersaving for retirement as auto-enrolment minimums are unlikely to give them enough to maintain their lifestyle when they retire. A further 17% of people said they thought it would be better to contribute somewhere between 11-15% per year - this may prove somewhere closer to the mark for many.
The important thing to remember is that your retirement is personal to you – what you want will differ from other people and so the cost will differ too. If you want a retirement full of travel, then that will cost a good deal more than one spent closer to home. The key is to think about what you want retirement to look like so you can get a sense of what it might cost. From there you can make use of online tools such as pension calculators to give you an idea of what you currently have and what that might give you in terms of income.
Once you’ve done that you can take further steps to build your retirement plan. Boosting your contribution every time you get a payrise or new job is one way of getting more into your pension. You can also make sure you are making the most of your employer contribution. While many will contribute at auto-enrolment minimums there are others who are willing to contribute more if you do. This is known as the employer match and can really give your retirement planning a significant hike if you have some extra cash that you can put into your pension.
You can then make sure you are making the most of all your pensions. You may well have lost track of a pension from an old role, and this could leave you thousands of pounds worse of in retirement. Check your paperwork and if you think you’ve lost a pension then get in contact with the government’s Pension Tracing Service. If you give them the name of your employer or pension provider, they can give you contact details.
Once you’ve got your pensions together you may decide to consolidate them. This can save time, money and administration. It will also give you a better sense of what you really have, so you can make better retirement decisions. However, before you do so, make sure you aren’t incurring expensive exit fees or missing out on benefits such as guaranteed annuity rates. It’s also worth saying it rarely makes sense to transfer a final salary pension.”
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