Preparing for your financial future is an imperative step to take to make sure you can live comfortably when you get older.

There are many different types of pension schemes and packages on the market, one of the most known being a workplace pension – but is a workplace pension enough to fund your retirement?

Let’s discuss.

Auto-Enrolment Contributions Through Your Workplace Pension

Most workplaces have to offer a Workplace Pension which is typically done via an auto-enrolment scheme where employees can contribute to their pension at a minimum level.

This allows a percentage of your take-home pay to automatically be put into your employer’s pension scheme for you each payday.

In the current tax year (2021/2022), this is a minimum level of 8% of your qualifying earnings, and of that, your employer must make up at least 3% of the 8% total.

Qualifying earnings are set by the government and are currently between £6,240 to £50,270 per year before tax.

But, this minimum level could leave you falling short of a comfortable retirement.

According to Which? who carried out a survey in February 2021, the average person requires £19,000 per year to live comfortably in retirement, and £26,000 for couples.

However, auto-enrolment pension schemes aren’t the only type of pension option out there, so it is important that you consider your retirement strategy now and make plans if your workplace pension does not meet your needs for your financial future.

If you are ever in doubt about what you should do in regards to your pension, contact one of our financial advisors who will be more than happy to help.

What Size Pension Do I Need?

This is a great question to ask when you begin thinking about your pension strategy for the future, and there are a few things you should consider when trying to find out.

An important factor to consider is your desired lifestyle and personal circumstances for when you retire as everyone is different. E.g. A single person would require less of a pension pot than a couple.

It is also important not to underestimate your life expectancy either as this will help give you a rough idea of how many years you would like to save for.

Lots of things change once you retire, including your outward expenses such as commuting costs and paying into your pension, so this is something to consider too.

However, while some costs come down, you could expect some of your costs to go up. This could include extra healthcare and insurance costs to lifestyles costs such as extra hobbies and socialising activities.

It’s impossible to work out exact figures as to how much you require, but this should help give you a general idea.

If you are ever in doubt, it is always a good idea to consult one of our Financial Advisors!

What Options Are Out There?

We’ve already touched on auto-enrolment as one type of work pension, but there are other alternatives that workplaces can offer and may be more generous. For example, some employers give you the option to increase the amount you pay into your pension.

However, if your workplace doesn’t meet your pension pot aims or doesn’t have many investment options available, then SIPP (Self Invested Personal Pension) can be used in conjunction with it to build up your funds.

Some workplace pensions may also assume that you want to buy an annuity at retirement which would reduce your exposure to riskier asset classes further as you get older.

You could also choose to opt for Income Drawdown.

Income Drawdown is where you leave your money invested and withdraw an ‘income’ as and when required.

There are also other sources of retirement income outside of pensions in general. These can include:

• ISAs (Individual Saving Account) – these can be a great way of funding your retirement through withdrawals as you don’t have to pay tax on the money you take out. (Ordinarily, if you were to start withdrawing from a pension, 25% of your savings can be withdrawn tax-free with further withdrawals then being taxed at your marginal rate of income tax).
• State Pensions – if you qualify for the full rate, the current state pension is around £9,350 per year.
• Cash Savings Account
• Property Income

It is important that you try to plan ahead now for your financial future (even if it seems ages away!) to save you the stress and worry at the time of your retirement. Our team of financial advisers are here to help you through every step along the way, so why not give us a call?

Coffey Brooks are a team of Independent Financial and Mortgage Advisers based in Clacton-On-Sea, Essex and are directly authorised and regulated by the Financial Conduct Authority.