At Boolers, our advice on pension contributions is to start as early as possible, allowing clients to take advantage of long-term investment performance and compound growth. But we also understand that this won’t always be possible.
While many factors – including rising house prices, increased costs of living, and the coronavirus pandemic – mean that many are approaching retirement with insufficient pension savings, it’s never too late for your clients to start contributing to their future.
The number of “late financial bloomers” is rising
The latest research from Which? confirms that an average retired couple will spend £18,000 a year on essentials. This rises to as much as £41,000 where the couple live a “luxury” lifestyle (said to include long-haul travel and a new car every five years).
Even starting early, this amount could be hard to attain for some clients.
The Telegraph reports that five million over-50s are “sleepwalking” into retirement, with 9 in 10 workers struggling to afford a comfortable retirement. Meanwhile, the Guardian reports on the rising numbers of “late financial bloomers”.
Currently making up only a small share of the retirement market, the number of over-60s who are getting married, having children, and buying their own home later in life is increasing. These late bloomers will start paying into a pension later than previous generations and are therefore at greater risk of having insufficient funds when they get there.
Thankfully, Boolers are here to help your clients put an affordable and realistic retirement plan in place, no matter what age they start contributing.
Building a sizeable retirement fund is possible, even from a late start
There is still time to build a comfortable pension pot even for clients starting late. Here are five factors to bear in mind.
1. There is still time to be patient
Carolyn Jones of the Money and Pensions Service recently told the Guardian that even clients over 50 “may still have a decade or more of working life, so there is still time to pay into a pension.”
Investments are best held for the long-term and with a specific goal in mind.
Focusing on a future retirement should help clients to cut out the noise of short-term market volatility, allowing them to avoid emotional decision-making and giving them the best chance of achieving their dream retirement.
2. Maximise contributions
Late financial bloomer clients may not have paid off their mortgage yet, or they might still be renting. While this could impact the amount they can pay into a pension, maximising contributions is crucial as a late starter.
Clients might find it easier to pay their future selves first, making contributions on payday each month and then budgeting with what remains.
Making the most of pay rises or bonuses is also useful. Putting additional money aside before there is a chance to spend it should lower the likelihood of the amount being missed.
3. And maximise employer contributions
An important part of maximising contributions will be taking advantage of auto-enrolment. While coronavirus might have caused some of your clients to cut or cease contributions, recommencing payments as soon as possible will give them the best chance of building a significant pension pot.
Not only will their contributions benefit from tax relief, but their contribution will be topped up by their employer too. The minimum contribution currently stands at 8%, with 5% paid by the employee and the additional 3% by the employer.
Your clients should ensure they are paying at least 5% but they might consider paying more. Some employers will even increase their contribution in line with that of their employee.
4. Remember the State Pension
The State Pension is worth £179.60 a week – £9,339.20 a year – and could be the solid foundation on which a late financial bloomer’s retirement is based.
Your clients will need 35 “qualifying years” of National Insurance contributions to receive the full amount. The amount received will be calculated per year where qualifying years are between 35 and 10. Below 10 qualifying years will result in no State Pension being payable.
Boolers can help your clients understand the amount they could receive and help them to decide if topping up their State Pension is affordable.
5. Consider any carried forward allowance
The Annual Allowance is a limit on the amount that can be contributed to a pension each tax year while still receiving tax relief. It currently stands at £40,000 (or 100% of your income if lower).
It is possible to carry forward unused allowance from up to three years ago.
While this not might be useful for everyone, late financial bloomers making a marathon effort in the final approach to retirement could take advantage of tax relief on large contributions.
Get in touch
If you have clients who are starting to make retirement plans later in life, or who might be struggling with a potential pension shortfall, please get in touch. Email email@example.com or call 0116 240 7070.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
“At Boolers, you know that things will be dealt with properly and professionally. A real safe pair of hands!”
“I have always found the quality of advice, technical knowledge and level of service is second to none. ”
“Thank you to all of you for such a wonderfully smooth transaction! Hope we can do it again some time.”
“Boolers provided excellent advice when we needed it most.”
“Boolers have provided myself, family and business with pension and investment advice for over 30 years and continue to provide a high quality professional service to us all on an ongoing basis.”
“Chris Ball has been our Financial Adviser for many years and, from the start, we have been impressed with his strategic sense, his deep knowledge and his skills in helping us build our own successful retirement. He understands our aims and how to achieve them and has taken great care of us throughout. ”