Retirement planning

The state pension alone won't be enough to ensure a comfortable retirement so it's worth reviewing your options as soon as you can to make sure you can afford life's little pleasures once you retire.

When it comes to planning for retirement, time is your friend. The earlier you start, the longer your money has the potential to grow. A man who started saving at age 40 would need to put aside £290 a month to get a pension of £10,000 at age 68. The monthly figure would be just £149 if he had started saving at 30, and would go up to £661 if he started at age 50(1).

But retirement planning isn't just paying money into your pension each month and forgetting about it, you need to be proactive. Here are a few key things you need to think about:

Review existing arrangements

Your lifestyle in retirement will depend heavily on your pension so it's important to review your provision regularly, particularly in the years approaching retirement.

Request statements from current and past pension providers to see how much you can expect to receive. If you need help tracking down old pension funds contact the Pension Tracing Service. You can also get a forecast of your state pension.

As you near retirement (around five years in advance), you might want to move your pension fund from higher-risk investments such as shares to more stable options such as fixed-interest bonds to protect yourself in the event of a stock market fall. This will also apply to any other investments you may have.

Check whether you're on track for retirement with our helpful planner tool.

Sheila Russell

Case Study

Sheila Russell from Cornwall took early retirement in 1993 and has supplemented her pension income in various ways since.

Boosting retirement income

If there's a gap between what your pensions will provide and how much you need to live on, try to increase your pension payments or savings as much as possible while you're still working. As the example above shows, payments made when you're younger can have a far greater impact on the fund's value in the long term.

Remember that you get tax relief on pension payments, so if you want to invest £100 in your pension, it will only cost you £80 (or less if you're a higher or additional rate tax payer).

You'll get tax relief on all your payments, up to £40,000 each tax year. Any payments over this limit could be taxed from 20% to 45%. But if the total payments in a year are less than £40,000, you'll be able to carry forward the unused allowance for up to three tax years(2).

Deferring retirement

Depending on your pension scheme, you might be able to choose when you start to take your pension benefits. This will usually be anytime after your 55th birthday. The longer you can delay taking it, the more you're likely to receive.

Similarly, you can boost state pensions by delaying when you claim them. You get a 1% increase to your weekly pension for every five weeks you defer (10.4% a year) and you can take some of your pension as a lump sum if you defer for at least a year(4).

Budgeting for retirement

Work out how much you'll need to live on in retirement, taking into account the different expenses you'll have when you're not working. You might have fewer travel costs, for example, but higher fuel bills if you're at home more often.

Your pension options

Personal and occupational pension schemes usually give you the option to take some of your pension (usually up to 25% of the fund's value) as a tax-free lump sum. Most people then use the rest of the fund to buy an annuity.


Annuities provide you with an income for the rest of your life. The annuity rate you get for your fund is decided by insurance companies and depends on a range of factors including your age, post code and type of annuity. Rates vary between companies, so always shop around for the best deal.

The Pensions Advisory Service has an online annuity planner to help you choose the right type of annuity for you. You can decide, for example, whether you want your income to increase each year or whether you want an annuity that provides for your partner if you die first.

Income drawdown

Income drawdown, or income withdrawal, offers an alternative to buying an annuity. It lets you take a regular income straight from your pension fund, leaving the bulk of the fund invested.

Currently, as long as your SIPP fund value is at least £30,000 (that's before you've taken a tax-free lump sum) you can opt for income drawdown. However, it's worth bearing in mind that the Financial Conduct Authority (FCA) recommends you have at least £100,000 in your fund. So you may want to take into account other sources of income when considering flexible income options.

Income drawdown can be expensive and risky so you might need the help of a financial adviser. If you take the income drawdown option you should keep a close eye on your investments throughout retirement to make sure you're not drawing out more income than your remaining investments can support.

Extra income in retirement

Once you retire you might be able to claim benefits on top of your state pension. The first £10,000 of your savings are not taken into account when assessing entitlement to Pension Credit, Housing Benefit or Council Tax Benefit(5).

You might need or want to carry on working in retirement. Many people supplement their pension by working part-time or through other money-making schemes such as letting out your drive or taking in a lodger. If you're claiming any means-tested benefits such as Pension Credit, check whether any extra income would affect your entitlement.

All your income including your pension is taxable, but higher personal allowances may mean you'll be subject to less tax than a younger person.

Paying for long-term care

As you get older, you may develop health problems and need care either at home or in a home. Fees for care homes are currently around £25,000 a year, rising to more than £36,000 a year for those that provide nursing care(6) . So it's worth thinking now about how you would meet such costs.

If you have certain medical needs, you might qualify for NHS funding. Otherwise your care will be means tested by your local authority. If you have more than £23,500 (£22,000 if you live in Wales) in capital and savings, you will be expected to meet the full cost of your care(7). The situation is different in Scotland, where all personal and nursing care is free for people over 65(8).

You might decide to sell your home to finance long term care, or you could investigate home income and equity release plans that let you access some of your home's value without having to sell it.

You can also purchase long-term care insurance (LTCI). The most common type immediate care LTCI involves buying an annuity that provides you with a fixed payment for as long as you need care. You take out the policy when you begin to need care. Pre-funded LTCI, which you buy before you need care, is no longer widely available(9) .

Top tips

  1. Always check your annual pension statement and if you don't get one, ask for one.
  2. You should pay as much as you can reasonably afford to your pension funds.
  3. Receive higher income by deferring retirement, but this is not guaranteed, as annuity rates and market conditions may change.
  4. When buying an annuity, always shop around for the best deal.
  5. You can continue to work in retirement and your tax-free personal allowance increases from the age of 65.

Important information and assumptions

References to legislation and taxation are based on Standard Life's understanding of law and HM Revenue and Customs Practice. Legislation and taxation are liable to change in the future. All figures relate to the 2014-15 tax year, unless otherwise stated.


  6. Bupa 'Planning for your needs in later life' factsheet

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