Changes in the 2023 Spring Budget mean a pension is now an even more attractive way to save for retirement. Here’s what you need to know to make the most of yours.
The Spring Budget included initiatives to help professionals continue to work and contribute to their pensions, including those working in the medical and teaching industries:
- The pension annual allowance rose from £40,000 to £60,000, which means you can save even more each year
- The pension lifetime allowance (LTA) was scrapped (previously it was £1.073 million), which means there are no additional tax penalties regardless of how much you save
- The money purchase annual allowance (MPAA) rose to £10,000 from £4,000, which is the maximum amount you can save into your pension each year if you’ve already started to draw an income from it
These changes are designed to encourage higher earners to keep working or return to work when previously it was less of an attractive option because of tax penalties when exceeding the LTA.
Identify your numbers and goals
When it comes to retirement planning, a good place to start is by defining your key numbers:
What age would you like to stop working?
Online pension calculators give you an idea of how long your pension could last and how your monthly contributions could impact your savings.
How long will your retirement last?
Life expectancy calculators help you figure out how many years you’ll need to cover after retirement. For example, a man today aged 66 can expect to live until 85 and a woman until 87 on average.
How much annual income will fund your lifestyle?
The Pensions and Lifetime Savings Association has calculated how much on average a couple or single person will need to support their retirement annually:
|
|
Minimum
|
Moderate
|
Comfortable
|
|---|---|---|---|
|
Single
|
£12,800
|
£23,300
|
£37,300
|
|
Couple
|
£19,900
|
£34,000
|
£54,500
|
Setting a retirement goal for the level that’s right for you can help you determine the steps needed to get there. Your Specialist Financial Adviser will guide you through important issues – from living expenses to healthcare costs and other factors that may impact your retirement, including whether your pension is in good shape.
What about the increased cost of living?
Saving for retirement can seem challenging when the cost of living is high, or when you may have credit card debt or loans to settle. But there are things you can do to manage your finances.
Budgeting can help you stay in control of where your money is coming from and where it’s going. If your incomings are less than your outgoings, look at ways to try to cut back on spending. A few small changes could give you some room to save.
How a professional adviser can help
Your Wesleyan Specialist Financial Adviser will help you create a retirement plan tailored to your specific needs and goals, including the following areas:
- Consolidating pensions into one portfolio so that it’s easier to manage and monitor
- Working out how much income you’ll need in retirement and explore ways to boost your pension
- Setting an investment strategy that’s appropriate for your objectives and adjust it as you approach retirement
- Diversifying any investments you might have outside of your pension, which could reduce risk and increase returns
- Explaining how your pension could also be used to pass on wealth tax efficiently
While a pension is usually the most tax-efficient way to save for retirement, there are still some restrictions around when and how you can access the money and how much you can withdraw that is free of tax.
Your adviser will help you navigate the tax implications around your pension. They can also explore other ways to save and invest tax-efficiently if you want to have access to the money before 55 or are not quite ready to draw down on your pension after that age.
Building a pension takes time, but with a solid plan you can move closer to your retirement goals. Together with advice from an expert, it’s possible to develop a strategy to boost your pension based on your needs. To find out more, get in touch with a Specialist Financial Adviser from Wesleyan Financial Services today.
Please note that tax treatment depends on your individual circumstances and may be subject to change in future.