Planning for retirement is one of the most significant financial steps in life. It’s about ensuring that when the time comes to step back from work, you can do so with confidence, knowing that you’ve made the right provisions.
At Smith Butler, we understand that every retirement journey is personal and unique. The good news is that by starting your retirement planning early, you can achieve financial security and enjoy your later years.
Why retirement planning matters
Many people may put off retirement planning, either because it seems far away or due to uncertainties about the future. However, the earlier you start, the better positioned you’ll be to meet your retirement goals.
From April 2024, the full new State Pension stands at £221.20 per week. While this provides a useful foundation, it’s often not enough on its own to cover your desired lifestyle. That’s why building up private pensions and savings is key to achieving financial independence in retirement.
Determine your retirement goals
The first step in retirement planning is understanding your retirement goals. What kind of lifestyle do you want? Are there any significant purchases you anticipate, such as a new car, travelling, or helping your children with their first homes?
By establishing your retirement goals, you can work backwards to determine how much you need to save to reach them. A general rule of thumb is that you should aim to have an income of at least 70-80% of your pre-retirement salary to maintain your lifestyle.
Understanding your pension options
Most people rely on a combination of State Pensions and private pensions. There are two main types of private pensions:
- Defined Contribution Pensions (DC): This is the most common type of pension in the UK, particularly for employees in the private sector. In a DC pension, both you and your employer contribute to a pension pot, which is then invested. The value of your pension pot depends on how well the investments perform and how much you and your employer have paid in.
- Defined Benefit Pensions (DB): Although becoming less common, some companies still offer DB pensions. These provide a guaranteed income based on your salary and the time you’ve worked for the company.
In 2024/25, the Lifetime Allowance for pension savings was effectively abolished, which means there’s no longer a cap on how much you can save into your pension pot without additional tax charges. However, the Annual Allowance – the limit on how much you can contribute to pensions each year while benefiting from tax relief – remains at £60,000.
Make the most of tax relief
One of the key benefits of pensions is the tax relief available on contributions. For every £100 you contribute to your pension, the government adds £25 in basic rate tax relief if you’re a basic rate taxpayer. Higher and additional rate taxpayers can claim further relief through their tax returns. In total, a higher-rate taxpayer could receive 40% tax relief on pension contributions, making this a powerful tool for building up your savings.
Additionally, pensions provide an opportunity to manage your tax liabilities in retirement. For example, you can take up to 25% of your pension pot tax-free, and by drawing income from different sources, such as ISAs and pensions, you may be able to minimise your overall tax bill.
Savings outside of pensions
While pensions offer fantastic tax advantages, it’s important to consider other savings and investment options. ISAs, for example, allow you to save up to £20,000 per year (in the 2024/25 tax year), and any growth or income is free from tax. Having a diversified portfolio of savings and investments means you’re not overly reliant on any single source of income in retirement.
You should also consider whether you’ll have any other income streams, such as rental income, dividends from investments, or part-time work. Diversifying your income can help provide a stable financial base in retirement.
How much should you be saving?
The question of how much to save for retirement is a personal one, and it largely depends on when you start. Experts often recommend saving at least 15% of your salary from your 20s onwards, but if you start later, you may need to increase your contributions.
If you’ve left retirement planning until your 40s or 50s, don’t panic. It’s never too late to start saving for retirement, but it’s important to get advice on how best to catch up. You can still build up a healthy retirement pot by maximising pension contributions, reducing unnecessary expenses, and investing wisely.
How we can help with retirement planning
At Smith Butler, we’re here to help guide you through the complexities of retirement planning. Whether you’re just starting to think about retirement or you’re approaching your final working years, we’ll work with you to create a tailored plan that fits your goals and circumstances.
We take the time to understand your current financial situation and work closely with you to build a clear, realistic strategy. By combining our extensive knowledge of pensions, tax, and investments, we ensure you have the right approach to achieve the retirement you deserve.
In summary
Retirement planning isn’t something that should be left to the last minute. By starting early, making the most of pensions and tax reliefs, and ensuring your investments are working for you, you can create a secure and enjoyable retirement. The sooner you take action, the greater your chances of achieving your retirement goals.
Let us help you plan your future – contact us today to arrange a conversation about your retirement planning needs.