Approaching retirement: Up to 10 years to go
Reviewing your plans now is really important. Although it may seem you still have a long time until you retire, small changes now can make a significant difference to your retirement income.
Take stock of all your pension plans
With 10 years to go, it’s time to take stock of your pension plans. Each year you should receive a statement from your personal and company pensions stating how much your pension is worth and an estimate of what this will provide in retirement. If you haven’t received this or you would like a more up-to-date statement, contact your pension provider(s).
You may also have lost track of some of your pensions, especially if you’ve moved between employers a lot during your career. To help you track these down, use the Pension Tracing Service. This is a free Government service that has information on more than 200,000 company and personal pension schemes. Details can be found at direct.gov.uk.
As well as checking your personal and company pensions, get a state pension forecast. A state pension profiler at the direct.gov.uk website will estimate how much you’ll receive, but you can also request a more detailed forecast based on your national insurance contributions.
Next, look at the investments in your pensions. If they’re underperforming or don’t fit your appetite for risk, address this by reviewing them. More details on how to do this can be found here..
Work out whether your retirement plans are on track
Now is a good time to assess whether your retirement plans are on track. Armed with your pension forecasts, think about how much money you will need to put your retirement plans into action.
Although the figures can vary, a handy tool to help you work out what you might need is available here. To give you an idea of what you’ll need to fund your retirement, this tool uses average figures for everything from home improvements to health club membership.
If you haven’t given much thought to your retirement lifestyle, why not start thinking ahead now? Perhaps you’ve always dreamt of owning and living in a cottage in the countryside, building a new conservatory or taking a year-long trip around the world. Or maybe you’d like to start a new business, either using skills you’ve developed during your working life or new ones you’d like to learn.
Whatever you decide, there are no rules about what you do in retirement and, as there’s plenty of flexibility around when and how you take your pension, now is a good time to start thinking.
Consider consolidating your pensions within a SIPP
Chances are your retirement savings will be spread across a number of personal and company pension schemes. Rather than leave them like this, you might want to consolidate them into a Self Invested Personal Pension (SIPP).
Consolidating your pensions has a number of advantages. With everything in one place it’s easy to see what you’ve saved and how much you’ll receive in retirement. It can also mean lower charges, especially if you have some older pension plans.
Using a SIPP also offers other benefits. SIPPs can use a wider range of investments, such as shares and commercial property, so you can build a portfolio that suits your investment tastes.
With a SIPP you also have more flexibility over how you take your retirement income. You can choose to take an annuity or, if you have more than £50,000 invested, go for income drawdown.
It’s worth taking professional advice before you consolidate, though. Some pensions have more generous benefits or incur charges; these are better left untouched.
Contribute as much as you can into your pension
There’s still plenty of time to top up your pension pot, so make every year count.
There are 3 possible ways you can make payments to the scheme and get tax benefits.
Option 1) Your company uses salary sacrifice.
This means that you give up (or sacrifice) part of your salary in exchange for a payment from your employer to the pension scheme. You don't get tax relief on that payment but you do save tax and national insurance on the salary you have sacrificed.
Option 2) Your company doesn't use salary sacrifice
This means payments to your pension scheme are taken from your salary before tax has been deducted. This will happen automatically – you don’t need to do anything.
Option 3) Your payments are deducted from your pay after tax
If you're a basic-rate taxpayer, the government gives you 20% tax relief on your pension payments, topping up your savings for you. The good news is that you don't have to do anything - we'll claim the 20% tax relief for you and automatically add it to your plan. That's definitely something worth having.
If you're a higher or additional rate taxpayer, you may qualify for extra tax relief. If this is the case, we'll claim the first 20% tax relief for you and add it to your plan. You'll need to claim the extra relief through your tax return.
You can increase your payments whenever you like. You can also arrange for your payments to increase automatically each year or in line with the index of average earnings.
As well as increasing your monthly contributions, you could consider making lump sum payments, perhaps if you receive a bonus, a windfall or an inheritance.
Laws and tax rules may change in the future. The information here is based on our understanding in September 2012. Your personal circumstances also have an impact on tax treatment.
Save and invest as much as you can tax-efficiently
As well as building up your pension pot, you can use other savings and investments to help fund your retirement. Whether they’re earmarked for retirement or not, it’s worth making these savings and investments as tax-efficient as possible.
A good place to start is with ISAs, which give you income and capital gains tax breaks. You can pay up to £11,520 into an ISA in 2013/14, with up to half of that (£5,760) in a cash ISA.
You could also consider investing in offshore bonds. They offer a wide range of investment options and give you more control over when you pay tax. Investments grow tax free and you can make withdrawals of up to 5% of your initial investment without paying tax. Instead, you pay tax when you cash in or withdraw more than 5% from the bond. For that reason, many people holding offshore bonds wait until they’re a lower-rate or non-taxpayer to minimise their tax bill.
You may wish to seek professional advice before selecting any tax-efficient products.