Latest news with #PensionsAndLifetimeSavingsAssociation
The Guardian
4 days ago
- Business
- The Guardian
Want to retire in your 50s? Here's how to plan for it
Retiring in your 50s can seem like a pipe dream, particularly with the high costs of living and restrictions on accessing your pension until the age of 55 – rising to 57 in 2028. However, with careful planning and consistent saving, you can increase your chances of an early escape from working life. Start by working out how much income you will need in retirement. According to the Pensions and Lifetime Savings Association, a single person now needs about £31,700 a year for a moderate lifestyle, while a couple needs £43,900 between them. These figures cover the cost of running a car, an annual overseas holiday and an off-peak long weekend break in the UK. Early retirees often spend more at first, packing in travel and hobbies while they are still active. One way to guarantee an income for a set period, or the rest of your life, is to buy something called an annuity. In exchange for a lump sum, you get regular payments, but how big these are depend on your health and your age, and if you buy one in your 50s, you will get less each year than if you wait until you are older. According to the financial firm Hargreaves Lansdown, someone earning £26,000 a year and contributing the standard 8% (5% from their earnings and 3% from their employer) to their pension from age 22 to 68 could build a fund of about £235,000. This could generate an annuity income of about £16,000 a year in retirement on top of the state pension (now £11,973 a year). If they stopped making contributions and bought an annuity at age 57, their fund might be closer to £143,000 – reducing their annual income to about £8,000 before the state pension. To retire at 57 with a £16,000 income from a personal pension, they would probably need to contribute about 13% of their salary throughout their working life on top of the 3% employer contribution. 'Even for some very high earners, the pressures of mortgages, raising a family, supporting elderly parents and an elevated cost of living can make a retirement in the early 50s a tough ask,' says David Little of the wealth manager Evelyn Partners. 'With improved life expectancies, that might mean a 40-year retirement or more.' Building up pension savings early is vital if you want to finish work in your 50s. Under current rules, you can pay up to £60,000 a year into a pension, or up to 100% of your annual earnings, whichever is lower, and still benefit from tax relief. Even modest contributions snowball because every year's gains are reinvested and start earning their own returns. Check whether your employer will match any extra contributions you make or let you use salary sacrifice, as both will boost your pension savings. Salary sacrifice boosts your pension because it reduces your gross salary, meaning you and your employer pay less in national insurance. Some employers pass their NI saving on to your pension, too, which can increase the total contribution. One partner can boost another's future income by making contributions for them. Up to £3,600 a year can go into a pension for a non‑earner and still receive basic‑rate relief. (You do not have to be married/civil partnered). Because pensions are locked until at least age 55 (rising to 57 in 2028), many people planning for early retirement also save into an Isa. You can put up to £20,000 a year into an Isa and benefit from tax-free growth and withdrawals, giving you a ready‑made bridge between quitting work and tapping your pension. Historically, stocks and shares have typically produced much higher returns than cash. '£1,000 invested in a global tracker fund 20 years ago would have grown to more than £5,000 today,' says Dan Coatsworth, an investment analyst at the investment platform AJ Bell. 'The same amount in a cash Isa earning an average rate over the same time period would be worth about £1,500. 'Global equity funds are popular with people in their 20s, 30s and 40s as they offer broad exposure. You can choose low-cost passive options like the Fidelity Index World fund, which tracks more than 1,300 companies across developed markets, including big names like Microsoft and Apple.' The £5,000 figure mentioned is based on investments in a stocks and shares Isa, but the principle of long-term compounding applies to Isa and pension investments. As you approach your target retirement age, Coatsworth recommends shifting strategy. 'Once you're within five years of retiring, think about how your pension will be structured. That could mean moving some of your pot into income-generating assets and potentially dialling down risk.' Some pension providers will automatically gradually reduce investment risk as you get nearer to retirement through something known as 'lifestyling', but it is worth checking where your investments are held. Lifestyling usually starts anything between five and 15 years before retirement. However, your pension provider may need to be told your intended retirement age if it is earlier than the default age. Reducing your expenses can make retiring in your 50s more achievable. High-interest debts, particularly credit cards and loans, should be paid off as soon as possible. Downsizing your home or relocating somewhere cheaper could free up equity and reduce your outgoings, and reviewing bills, insurance and subscriptions could also reveal some easy savings. Even small reductions in spending can reduce the sum you need to live on each year, helping your money last longer. Retiring early means covering the years before the state pension kicks in. Helen Morrissey, the head of retirement analysis at Hargreaves Lansdown, says: 'The state pension age is on the way up – [it's] currently 66 and due to hit 68 by the mid-2040s. Given the important role that the state pension plays in people's retirement income, much more will need to be saved in the pension to bridge this gap.' The state pension is now just under £12,000 a year. 'If it increased by 2.5% per year over a period of 10 years, then that would be about £150,000 extra that would need to be saved into a pension to cover that period if you were looking to retire early,' Morrissey says. You need 35 qualifying years of NI contributions to receive the full amount. Beware that gaps in your NI record to raise children or care for others can mean you fall short of the 35 years needed for the full state pension. This is a particular risk if you are aiming to retire early, as you will have fewer working years to make up the shortfall. You can pay voluntary NI contributions to fill gaps in your record. You can take up to 25% of your pension pot tax-free from age 55 (rising to 57 from 2028). This is often taken as a lump sum, but you can also take it in stages. The rest of your pension withdrawals will be taxed as income. Some early retirees buy fixed-term annuities with part of their pension to provide a guaranteed income until state pension age – rates are more attractive now than in recent years. Little warns against cashing in the 25% tax-free pension lump sum too early: 'Taking it all at once in your 50s can deplete your pot quickly. Taking it in tranches makes it last longer.' Retirement plans don't need to be set in stone. Stock markets fluctuate, living costs rise, and plans change. Reviewing your savings annually can help you spot problems early and make adjustments. Most pension providers offer online tools to let you test different scenarios. If you are falling behind, you may need to boost your contributions. If your investments perform better than expected, you might gain extra flexibility. 'Early retirement is achievable, but it takes discipline and regular checks,' Morrissey says. 'It's worth setting a reminder to review your plans each year.'
Yahoo
21-07-2025
- Business
- Yahoo
Are you among the 82% of self-employed people who don't pay into a pension? How to take charge of your retirement savings
If you're self-employed, when was the last time someone talked to you about pensions? Chances are, probably not very recently. However, research from NEST Insights shows that more than half of self-employed people in the UK - which includes freelancers, sole traders and limited company owners - are on track to experience retirement poverty. This compares to just a quarter of full-time employees. According to the Pensions and Lifetime Savings Association, the new state pension (£11,973 a year) isn't enough to meet the minimum standard of living of £13,400 a year for a single person, and only just meets the minimum standard for a couple (£21,600 a year) living outside London. Why have self-employed people been left behind with pensions? There has been a dramatic drop in pension saving among the self-employed in the last few decades. Back in 1998, 60 per cent of self-employed people earning at least £10,000 a year were paying into a private pension. By 2025, that figure had collapsed to just 18 per cent, despite almost 75 per cent of this group saying they want to save for retirement. Meanwhile, auto-enrolment has consistently boosted pension savings among employees. When it launched in 2012, around 47 per cent of employees were enrolled in workplace pensions. By 2024, that figure had grown to about 80 per cent. Would auto-enrolment participation be anywhere near 80 per cent if employees had to do it all manually? It seems unlikely. For the self-employed, there are no monthly contributions quietly being deducted from your earnings before you even notice them. You need to manually save into your pension by transferring money from your bank account, or setting up direct debits. However, other NEST research has found 57 per cent of self-employed people would prefer putting money into a mix of illiquid savings (funds locked away until retirement) and liquid savings (cash that is easily accessible) when saving for retirement. This type of hybrid account structure isn't currently available within one product. Small and consistent makes the biggest difference Self-employed people can still make a difference to their futures, though - without jeopardising their short-term money needs. For example, £2 invested every day into a private pension could become just under £12,000 after 10 years, about £31,000 after 20 years, and about £62,000 after 30 years (for basic-rate taxpayers). An additional £60,000 can give you £250 more to live on each month for 20 years, on top of the State Pension (discounting inflation and other economic factors). (Getty/iStock) The main pension options for self-employed people at present are: 1. SIPP (Self-Invested Personal Pension) - This is a DIY pension that gives you access to a wide choice of shares, funds and ETFs. You get 20 per cent tax relief on contributions as a basic rate payer. 2. Managed or personal pension - If managing your own investments sounds like a chore, go for a provider that does it for you. These pensions, which are usually marketed as 'personal' or 'managed' pensions, adjust your portfolio based on market conditions and other macroeconomic factors. It's a great 'set-it-and-forget-it option' for busy freelancers and small business owners. You get the same tax relief as with SIPPs and can often choose your personal risk tolerance level. 3. Lifetime ISA (LISA) - If you're under 40, opening a LISA is an option. This includes a 25 per cent government bonus on top of every contribution you make until you turn 50. That means there's up to £1,000 up for grabs each year with a maximum contribution of £4,000. Unlike a pension, LISA withdrawals after age 60 are tax-free but there are factors to be aware of including withdrawal penalties. For a more detailed LISA vs personal pension comparison, read here. 4. Paying through your limited company - If you run a limited company, you can make pension contributions directly from your business as an allowable expense, which can reduce your corporation tax bill. This is often the most tax-efficient way for company directors to save for a pension, especially if you pay yourself with dividends. Expert pensions tips for the self-employed Sarah Pennells, consumer finance specialist at Royal London, has four key tips. Firstly, treat your pension contributions as a must-pay. 'Set aside a regular sum every month to pay into a pension. If it helps to motivate you, treat the money you pay into your pension like any other bill,' Ms Pennells says. (Getty Images/iStockphoto) It's also important to understand the tax benefits, especially if you're a higher-rate taxpayer: 'If you run a limited company, making pension contributions through the limited company will reduce your company's taxable profits.' You also don't have to stop with monthly payments - bulk dropping a bonus can supercharge your pension. 'If regular saving is tough, aim to make one-off contributions after higher-earning periods, such as at the end of a project, or as you're approaching the end of the tax year,' she adds. Finally, do set a clear retirement goal. 'Knowing what you want your retirement to look like makes it easier to plan. Use online pension calculators to check if you're on track- it can help keep you motivated. The key question to ask yourself is: what will you live on when you retire if you don't have a pension?'Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
The Independent
21-07-2025
- Business
- The Independent
Are you among the 82% of self-employed people who don't pay into a pension? Here's how to take charge
If you're self-employed, when was the last time someone talked to you about pensions? Chances are, probably not very recently. However, research from NEST Insights shows that more than half of self-employed people in the UK - which includes freelancers, sole traders and limited company owners - are on track to experience retirement poverty. This compares to just a quarter of full-time employees. According to the Pensions and Lifetime Savings Association, the new state pension (£11,973 a year) isn't enough to meet the minimum standard of living of £13,400 a year for a single person, and only just meets the minimum standard for a couple (£21,600 a year) living outside London. Why have self-employed people been left behind with pensions? There has been a dramatic drop in pension saving among the self-employed in the last few decades. Back in 1998, 60 per cent of self-employed people earning at least £10,000 a year were paying into a private pension. By 2025, that figure had collapsed to just 18 per cent, despite almost 75 per cent of this group saying they want to save for retirement. Meanwhile, auto-enrolment has consistently boosted pension savings among employees. When it launched in 2012, around 47 per cent of employees were enrolled in workplace pensions. By 2024, that figure had grown to about 80 per cent. Would auto-enrolment participation be anywhere near 80 per cent if employees had to do it all manually? It seems unlikely. For the self-employed, there are no monthly contributions quietly being deducted from your earnings before you even notice them. You need to manually save into your pension by transferring money from your bank account, or setting up direct debits. However, other NEST research has found 57 per cent of self-employed people would prefer putting money into a mix of illiquid savings (funds locked away until retirement) and liquid savings (cash that is easily accessible) when saving for retirement. This type of hybrid account structure isn't currently available within one product. Self-employed people can still make a difference to their futures, though - without jeopardising their short-term money needs. For example, £2 invested every day into a private pension could become just under £12,000 after 10 years, about £31,000 after 20 years, and about £62,000 after 30 years (for basic-rate taxpayers). An additional £60,000 can give you £250 more to live on each month for 20 years, on top of the State Pension (discounting inflation and other economic factors). The main pension options for self-employed people at present are: 1. SIPP (Self-Invested Personal Pension) - This is a DIY pension that gives you access to a wide choice of shares, funds and ETFs. You get 20 per cent tax relief on contributions as a basic rate payer. 2. Managed or personal pension - If managing your own investments sounds like a chore, go for a provider that does it for you. These pensions, which are usually marketed as 'personal' or 'managed' pensions, adjust your portfolio based on market conditions and other macroeconomic factors. It's a great 'set-it-and-forget-it option' for busy freelancers and small business owners. You get the same tax relief as with SIPPs and can often choose your personal risk tolerance level. 3. Lifetime ISA (LISA) - If you're under 40, opening a LISA is an option. This includes a 25 per cent government bonus on top of every contribution you make until you turn 50. That means there's up to £1,000 up for grabs each year with a maximum contribution of £4,000. Unlike a pension, LISA withdrawals after age 60 are tax-free but there are factors to be aware of including withdrawal penalties. For a more detailed LISA vs personal pension comparison, read here. 4. Paying through your limited company - If you run a limited company, you can make pension contributions directly from your business as an allowable expense, which can reduce your corporation tax bill. This is often the most tax-efficient way for company directors to save for a pension, especially if you pay yourself with dividends. Expert pensions tips for the self-employed Sarah Pennells, consumer finance specialist at Royal London, has four key tips. Firstly, treat your pension contributions as a must-pay. 'Set aside a regular sum every month to pay into a pension. If it helps to motivate you, treat the money you pay into your pension like any other bill,' Ms Pennells says. It's also important to understand the tax benefits, especially if you're a higher-rate taxpayer: 'If you run a limited company, making pension contributions through the limited company will reduce your company's taxable profits.' You also don't have to stop with monthly payments - bulk dropping a bonus can supercharge your pension. 'If regular saving is tough, aim to make one-off contributions after higher-earning periods, such as at the end of a project, or as you're approaching the end of the tax year,' she adds. Finally, do set a clear retirement goal. 'Knowing what you want your retirement to look like makes it easier to plan. Use online pension calculators to check if you're on track- it can help keep you motivated. The key question to ask yourself is: what will you live on when you retire if you don't have a pension?' When investing, your capital is at risk and you may get back less than invested. Past performance doesn't guarantee future results.
BBC News
28-05-2025
- Business
- BBC News
Reeves outlines plan for £25bn pension 'megafunds'
The government has fleshed out its plans for reforming the UK pension industry, including the creation of £25bn "megafunds" which will be instructed to make a portion of their investments locally to help fuel economic chancellor said the overhaul, designed to follow the example of Australia and Canada's huge pension investment funds, would also boost people's pension pots. "These reforms mean better returns for workers and billions more invested in clean energy and high-growth businesses," Rachel Reeves of the UK's largest pension firms already approved the gist of these reforms in a voluntary agreement earlier this month. However, the government is also including a legislative back-stop, which will allow it to push through the new rules, if insufficient progress is made by the end of the government has indicated it does not expect to use the new powers. Nevertheless, that element may draw criticism, with some in the industry opposed to any government mandate over how and where investments are Alexander, a director at the Pensions and Lifetime Savings Association, said the changes would have "significant implications" for how pension schemes she added: "Increased consolidation has the potential to improve retirement outcomes through improved governance, wider investment diversification and improved bargaining power." Miles Celic chief executive of The City UK, representing the financial services industry, backed the chancellor's assertion that the move could "help drive economic growth". A former Liberal Democrat pensions minister, Sir Steve Webb, who is now a partner at consultants LCP (Lane Clark & Peacock), described the news as "truly a red letter day for pension schemes, their members and the companies who stand behind them"."The Government has clearly been bold in this area and this opens up the potential for this surplus money to be used more productively to benefit scheme members, firms and the wider economy," he added. One of Labour's first moves after taking office last year was the announcement of a pension review. In November the chancellor floated her "megafunds" plan, which covers retirement savings for the majority of UK workers in two there are the 86 different local authority pension schemes, which provide for more than six million people in their retirement, the majority low-paid women. The £392bn in these defined benefit schemes will be merged in just six asset pools by March next a defined benefit scheme a worker pays into their pension and is paid a pre-determined amount based on their salary and length of investment targets will be agreed for local authority pension schemes for the first time, the Treasury defined contribution schemes currently worth £800bn, and covering millions of other private and public sector workers across the country, will also be defined contribution schemes workers are not guaranteed a specific amount. Instead their pension depends on the performance of the fund in the years before 2030 the government says there should be more than 20 pension funds worth more than £25bn, in contrast to the current part of the voluntary agreement, known as the Mansion House accord, agreed earlier in May, the 17 firms involved committed to investing 10% of their assets in things other than publicly traded shares, so that more money would flow into home-building, infrastructure projects and start-up businesses in fast-growing addition, 5% of investments will be earmarked to go into UK reforms will form part of the Pension Schemes Bill, about to go before Parliament. The new approach would mean over £50bn additional investment in UK infrastructure, new homes and businesses, the Treasury Thursday the government is publishing the final report from its Pensions Investment Review. It said the review found the reforms would drive higher returns for pension savers through cutting waste, economies of scale and improved investment a result workers on average earnings could see a £6,000 boost to their defined contribution pension pot, the Treasury said.
