Is a Standard Pension Enough for your Retirement?

Pensions often feel like a topic you can put off for another day – and they can certainly seem like they are only relevant much later on in your life. But the truth is that your pension needs to be a key consideration – how are you going to fund your time in retirement? 

Many people understand that they get a state pension, and it is now more common to have something of an understanding of a workplace pension, as changes to the system have made big news in the past few years. 

Interestingly, statistics show that around three out of every five people have no idea how much money they have saved for their pension. So perhaps it is not surprising to realise that there is a real gap in understanding what your pension is worth and how much you need to save.

Here we take a look at whether your standard workplace pension is going to be enough for you to live comfortably in retirement, or whether now is the time to start doing something about it. 

Your state pension 

The first thing that you need to understand is how much you are going to get from your state pension. Women who were born on or after 6 April 1953 and have a minimum of ten years of National Insurance (NI) contributions will qualify for the ‘new’ state pension (for men, the threshold is two years earlier: 6 April 1951). 

Under the new state pension, you will be able to claim up to £175.20 per week, depending on your NI contributions. There are some scenarios that are worth investigating where you could be owed additional state pension. 

Most people consider that the state pension is not enough on its own to provide a comfortable retirement. Even if you are planning to live in a property with no mortgage, there are still bills to pay. 

Your workplace pension and auto-enrolment 

In 2018, the way that workplace pension schemes work in the UK changed. In the past, if an employee wanted to take advantage of a company pension scheme they needed to explicitly enrol onto it themselves. It is now the case that employees must be automatically enrolled on their company pension scheme, although they may still request to come off of it. 

The specifics are a little complex, but functionally as of 2021, the total current minimum contribution to your pension scheme is 8% (including a minimum of 3% contributed by your employer). This means that most people will be putting 5% of their salary into their pension. 

However, there are concerns that this still won’t be enough to cover the costs of a comfortable retirement for most people. In fact, comments on this fact were made back when the scheme was initially proposed in 2012.

What are your other saving options?

Many employees wonder whether it is too late or even too soon to be considering making additional contributions to your retirement savings. However, this is the wrong way to be thinking about it. 

“No matter how old you are it is never too late to think about financially planning for your retirement and paying into a pension scheme,” says Adam Reeves, of Reeves Financial “it is actually a tax-efficient way of saving money. There are several different types of pension schemes; some are run by employers and others you can set up yourself”. 

The first possibility is that you could put more into your current workplace pension. This is generally easily done – you can simply talk to your employer about topping up your pension.

Alternatively, you could choose to invest in a separate pension scheme with many providers offering a variety of products. You could also go for a simpler option: an individual savings account (ISA). 

Final thoughts

For the majority of people, it is better to be safe than sorry. Even if you believe that your state and workplace pensions are going to be enough to keep you living comfortably in retirement, it can actually be better to make your own personal plans as well. This way you are spreading your pension more broadly. To learn more about pension and how to properly manage it, visit Retire blog for more information.

Whether you are thinking of investing your money outside of a pension scheme or choosing a specific investment product, it is a great idea to talk with an independent pensions adviser who can provide unbiased information on the best solution for you. 

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