Britons need to start planning ahead and think about what their retirement might look like, as well as how they plan to fund it, because realistically people can’t work forever. On The Money to The Masses Podcast, money expert Andy Leeks gave some tips for those in their 40s and 50s about saving money and avoiding making mistakes.
“You can tell the calculator that you might want to increase your contributions and retire later.
“Just make a plan, see what the future might hold and stop burying your head in the sand because every day that goes by where you don’t do something about your pension planning is another day that you lose in time and compounding.”
Mr Leeks went on to discuss the state pension.
It’s important for Britons to not assume that they will get the full state pension, he warned.
People get a pension based upon their National Insurance contribution history and you need to have 35 years’ worth of contributions to get the full state pension.
Mr Leeks said: “If you’re in your 40s and particular 50s, and you’re getting towards the latter stages of your 50s, make sure you get a state pension forecast.
“You can go online, and you get that from the gov.uk website and you can find out what sort of state pension you are likely to get.
“But more importantly, you can find out if there is going to be a shortfall and if there is a gap because you’ve not paid enough National Insurance.
“Make sure you are part of your auto enrolment at work so you’re getting those contributions from your employer on top of the one going into your pension pot,” Mr Leeks explained.
Additionally, when people get towards their mid 50s and can start accessing their private pensions, it may be a good time to get financial advice for things such as drawing on one’s pension because of the tax rules, and the options they may have around that time. Sometimes making the wrong mistake can come at a big cost, and in the future, it can have a knock-on effect. For example, if people want to go into drawdown – using their pot of money to provide an income, Mr Leeks suggested that people go and seek advice.
Another mistake people may make is needlessly taking money from their pension pots.
Mr Leeks continued: “The issue with doing that is if you’re going to take money out of a tax-free environment, it is therefore going to enter a taxable environment potentially and will become part of your estate so potentially be liable to Inheritance Tax as well.
“So, there’s a lot of planning that needs to be taken into account of optimising the tax position when you’re taking money out of a pension.”
If people are thinking of taking money out of their pension, it may be better to take it from a different source such as savings or a stocks and shares ISA, he suggested.