In your 50s and just recently started concentrating on saving for retirement? Or thinking about it? Here’s some reassurance that you still have an opportunity to build up your savings.
Out of 2,655 40 to 75-year-olds who took part in a survey for the Department for Work and Pensions, 16% had not begun to save for their retirement. And while starting your savings journey early is almost always preferable since there’s more time to save, later is still better than never. We explain how a pension plan can help you on the road to retirement – even if you started paying into one in your 50s or potentially beyond.
You can get tax benefits on your pension payments
When you pay into a pension plan, you usually get tax benefits.
With most plans, these benefits come in the form of tax relief. Let’s say you pay the current basic rate of income tax, which is 20%. To have £100 paid into your plan, the cost to you would actually only be £80. The government would add the extra £20.
Normally, you'll automatically get tax relief at the basic rate of 20%. If you’re a higher or additional-rate taxpayer, you may need to claim back anything above 20% from the government.
Depending on your plan, tax benefits can work differently to what we’ve described above. If you’re part of a salary sacrifice or salary exchange scheme, for example, you might get tax benefits in a different way. But the idea’s the same – you can get a financial boost from the government, which can make it quicker and easier to increase your pension pot’s value. This may be particularly reassuring if you started saving a bit later in life.
Bear in mind that when you’re 75 or over, you can lose some of the benefits that usually come with a pension plan. When you reach this age, you’ll no longer get tax benefits on any pension payments.
Your own personal circumstances, including where you live in the UK, will have an impact on the tax you pay. Laws and tax rules may change in the future.
Your pension money is invested
The money in your pot is invested. Thanks to a process called compounding, you could get returns on the money you put in and on the growth you achieve on top of that.
Generally, the longer your money is invested, the bigger your pot could be in future. But even if you begin or focus on your savings journey later, there could still be potential for growth.
Let’s say you start saving at the age of 50 and plan to take your money at 66, which is the current State Pension age. (Do keep in mind this is due to rise to 67 by 2028, with further increases planned beyond this. You can check your own State Pension age on GOV.UK.)
In the example above, your money would stay invested for at least 16 years. Plus, you could leave some money invested once you’ve started taking an income from your plan. But remember, the value of investments can go down as well as up and could be worth less than was paid in.
Some people want to take less risk with their investments the closer they get to retirement, since there’s less time to ride out market fluctuations. Whatever your situation, it’s important to feel comfortable with your investments.
Your employer can pay into your plan too
If you’re in employment, you’ve probably been enrolled into a workplace pension scheme. In fact, if you start a new job between the age of 22 and State Pension age, you’ll likely be automatically enrolled into one of these.
Your employer usually needs to pay into your workplace pension plan. This can help increase your savings faster than if it were only you and the government paying in. Again, this is good news if you started or are starting to save later in life.
Your employer usually needs to pay in a minimum of 3% of your ‘qualifying earnings’. This means they normally make their payments based on anything you earn in a year between a lower limit of £6,240 and an upper limit of £50,270. But some employers will apply the percentage they pay to all of your earnings, including those above the upper limit.
You’ll pay into your workplace pension, too. Usually, your minimum payment is 5% of these earnings. So a minimum total of 8% needs to be paid in.
Some employers may pay in more than their 3% minimum. Some might even match your payments up to a certain point, meaning they could pay in more if you do too. You could check with your employer to see what’s possible.
Remember the State Pension
The bottom line is this: pension plans can have many benefits that make it quicker and easier to boost your savings. So if you’re over 50 and you’re just starting to concentrate on saving, you could still have time to increase the size of your pension pot.
And don’t forget, there’s the State Pension too. The full new State Pension amount for the 2023-24 tax year is around £10,600 annually, but you might not receive this much. You can check how much State Pension you might get on GOV.UK.
You can choose to defer your State Pension – i.e. delay taking it. This means you could get larger payments when you do start claiming it, which might suit you depending on your circumstances. You can find out more about deferring on GOV.UK.
According to the updated Retirement Living Standards – from the Pensions and Lifetime Savings Association – one person living outside London could need £12,800 a year for a ‘minimum’ standard of living in retirement. So your State Pension alone might not be enough to manage on. But if you can build up some pension savings, you’ll have something to supplement your State Pension income.
The Retirement Living Standards also outline how much you might need to achieve a ‘moderate’ and ‘comfortable’ standard of living in retirement. It’s worth checking the standards to see which one matches up with your goals.
If you’re a Standard Life customer, you can check the value of your plan on your app or through your online account.
You can also try our pension calculator. This helps you see how much you might have in your pension plan in the future, and it takes the State Pension in account. Don’t panic if you’re not where you want to be. Our tool could help give you a clearer idea of how much to pay in each month going forward.
And if you’re feeling unsure about your retirement options, you may want to get financial advice. If you don’t have a financial adviser, you can find one at Unbiased.co.uk.
The information here is based on our understanding in January 2023 and shouldn’t be taken as financial advice.
Standard Life accepts no responsibility for information in external websites. These are provided for general information.
A pension is an investment. Its value can go down and well as up and could be worth less than was paid in.