1. S: Sit Down and Plan
The first step to secure a comfortable retirement is to understand your current financial situation and set out clear goals. Our latest Retirement Report revealed that only 39% are on track for an adequate retirement lifestyle, yet a quarter aren’t sure how pensions work. Making financial decisions about your retirement starts with understanding what pensions are - long-term investments that help you save for your retirement in a tax-efficient way. There are different types of pensions available depending on your working arrangements, as well as the State Pension given to you by the Government when you reach the legally-agreed age. Generally for private pensions, if you are employed, you contribute an amount of your gross income which goes into a pot that your employers contribute to as well.
2. A: Auto-Enrol
From the age of 22, you are automatically enrolled into your workplace’s pension scheme and we recommend not opting out. This means that by default, you set aside at least 8%, which is the current minimum required, worth of your gross income for retirement each month, split between your contributions and your employer’s. If your employer offers matching contributions, be sure to maximise this opportunity and increase your personal contributions where possible. Scottish Widows is advocating for lowering the auto-enrollment age to 18 and eliminating the lower earnings limit, which could significantly boost pension savings for young people's future pension pot by £46,000. Even if these changes aren't implemented immediately, it's advisable to start saving as soon as you begin working. We also recommend working towards 12% of joint contributions, even just 1% at a time.
3. V: Value: Keep Track of the Total Value of Your Pension
It's crucial to monitor your pension savings regularly, especially if you have multiple pots. A fifth (20%) of people plan to consolidate their pensions but are unsure how to proceed. Scottish Widows' Ready-Mady Pension tool simplifies this process, allowing you to manage your retirement savings directly through your Lloyds Bank, Halifax, or Bank of Scotland banking app. Launched specifically for the Pension Engagement Season, Scottish Widows’ #PensionMirror is another tool to help you get more engaged with your pension planning.
4. E: Enhance: Maximise Your Pension with Salary Exchange
Salary exchange (also known as salary sacrifice) is a tax-efficient way to save for retirement, but it’s often misunderstood. By redirecting a portion of your pre-tax salary to your pension, you can increase your contributions and potentially benefit from tax savings. Despite the name, salary sacrifice doesn't reduce your take-home pay. In fact, it can boost your pension savings significantly - opting for salary sacrifice could increase your pension savings by £463 a year.
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