The cost of retirement is still soaring. The latest data from the Pensions and Lifetime Savings Association (PLSA) is showing the cost of a ‘moderate’ retirement income has gone up by an astonishing £8,000 per year for a single person living outside London.
A ‘moderate’ retirement is classed as being able to afford one overseas holiday a year with space in the budget to run a car and go out to eat. Last year the PLSA had this costing £23,300 a year for a single person and £34,000 for a couple. In just one year it’s leapt to £31,300 and £43,100, respectively.
For people wanting a bit more luxury, the costs for a ‘comfortable’ retirement have also gone up to £43,100 for one and to £59,000 for a two-person household.
Why is the cost of retirement soaring?
There are a few reasons – increased food and energy costs are a big factor, but they also reflect people’s changing needs in retirement. The pandemic took us away from our family and friends, and this means time with loved ones and enjoying holidays have become much more important.
These aren’t strict numbers though – everyone’s view of what makes for a good retirement is different, so your income needs will probably be different from these figures. But it still shows how important planning ahead is.
Having a good idea of what you want your retirement to look like will help you put together a plan for how much it costs. Checking your progress against this plan regularly will let you know you’re on track and whether or not you need to boost contributions.
This article isn’t personal advice. If you’re not sure what’s right for your circumstances, ask for financial advice. Pension and tax rules can change, and benefits depend on your circumstances. Money in a pension is not usually accessible until age 55 (57 from 2028).
5 tips to help boost your retirement
1. Start saving early
Basically, the earlier you start saving into your pension the better. Over time you will contribute more, and this, any employer contribution and long-term investment growth can really help build your pension. But remember, the value of your investments can go up and down, so you could get back less than you invest.
2. Maximise employer contributions
A lot of employers will pay contributions set at auto-enrolment minimums, but there are some who will pay in more if you do. This is called employer matching and it’s a great way of significantly boosting how much goes into your pension, without paying in lots more yourself.
3. Claim your tax relief
Tax relief is set at your marginal rate of income tax. So, if you’re a basic-rate taxpayer, for every £80 you pay into your pension the government will top it up to £100. If you’re a higher or additional-rate taxpayer, you only need to pay in £60 and £55 to get the top up to £100.
Basic-rate tax relief is usually given automatically. However, if you’re a higher or additional-rate taxpayer, you might need to claim the extra relief through a self assessment.
4. Make the most of your allowances
Most people can contribute the lower of their annual earnings or £60,000 to their pension every year and get tax relief. But if you haven’t used up your full allowance in the last three tax years, you might be able to carry forward this unused allowance and pay more into your pension.
To be able to carry forward unused allowances, you need to have been a member of a registered pension scheme in the tax year(s) which you’re carrying forward.
You also need to have earnings of at least the total amount you want to contribute. For example, if you want to contribute £100,000 using carry forward, then you need earnings of at least £100,000 in the current tax year.
More on the carry forward rule
5. Make the most of a pay rise or bonus
A pay rise is the ideal time to boost your contributions. Similarly, if you get a bonus, check to see if your employer offers a bonus sacrifice scheme.
This is where you can choose to give up some, or all, of your bonus and have it paid straight into your pension. You’ll also benefit by not having to pay National Insurance or income tax on the amount you give up.
The secrets of building a million pound pension
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