How to Save for Retirement & Build Pension Funds
UK consumers have a few options when it comes to building pension & retirement funds. What does the state provide and how can the individual best save for retirement?
Most people look forward to their retirement as a time when they can be free of financial commitments. This is a time when they can finally relax after years of working and bringing up a family and reap the rewards to which they are entitled. But many fail to build up decent pension pots and find that this actually becomes a time of financial hardship. Thinking early about how to save for retirement may be useful. What options can be used?
What is the State Pension?
In the UK the years that an individual works or the years that they are given credits for (i.e. when they give up work to look after their children) all come together to build a pension pot. This will make up the State Pension. The pension given will not necessarily be the same for every individual. Some may get the full State Pension; others may get a reduced amount or may not qualify at all.
Basically, the pension given is made up from the qualifying years when an individual worked. A year here is counted if the individual earned enough to make National Insurance payments or was given credits. The limits at the moment for the full State Pension are:
- 44 years for men
- 39 years for women
Those that retire after April 2010, however, will only need 30 years to qualify. Applying for a State Pension forecast may be useful as part of the retirement planning process along with a plan like a QROPs, with a qualifying pension scheme if you plan on living abroad.
What Other Pension Plans are Available?
Few people want to solely rely on the State Pension, and many will take different routes to boost their retirement income. Options include:
- Company pensions offered by employers
- Personal pensions taken out by the individual
- Stakeholder pensions either given by employers or taken out by individuals
- Tax free and standard investment vehicles and savings accounts
- Many individuals will build up a variety of retirement savings and investment solutions, depending on their circumstances.
- Things to Consider with Retirement Planning
The earlier an individual can save for retirement, the better in the majority of cases. Most pension plans are investment based so, all being well, they will show the best returns over time. This doesn’t mean that an individual should forget about their retirement if they have failed to make early plans, however. Making a retirement spending budget can help show how much money may be needed and whether action needs to be taken to boost income.
Those looking at fast-tracking retirement funds later in life may, for example, look at their tax-free savings options if they are advised that a new pension may not work for them. Investments may not build up quickly enough to give a decent return at this stage so simply trying to build regular savings as much as possible may be worth doing. Taking independent advice from a pensions advisor or financial planner may help to work out the best options.