According to FTAdviser, a study has suggested that there will be more than 29,000 UK centenarians by 2041. It claims that even with a “morbidity blip” caused by the Covid pandemic, the number of Britons aged 100 or more is expected to rise by 78% over the next two decades.
While this is great news in many ways, it does raise one concern. What happens if your pension runs out before you do? If this were to happen, it could create financial difficulties later in life.
Read on to discover three clever steps you could take to help ensure your pension remains in good health no matter how long you live for, so that you can enjoy the retirement lifestyle you want.
1. Predict your spending
Key to making sure your pension lasts as long as you do is to ensure its longevity. This can be done by working out the amount of income you are likely to need in retirement, and whether your pension pot is large enough to support it up until the age of 100 – and potentially, beyond.
A financial planner can help with this as they can use income modelling software that takes into account the rising cost of living, otherwise known as inflation.
This is particularly important, as inflation has the potential to deplete your pension earlier than expected. This is because you may need to draw larger amounts from your pension to cover the rising cost of living, which, in turn, could result in your retirement fund running dry more quickly.
A planner could create a pension strategy that helps your pension keep pace with inflation, allowing you to maintain your lifestyle no matter how long you live for.
2. Boost your pension
If you want to ensure you don’t run out of money if you live to a grand old age, one option might be to boost your pension pot. There are several ways you could do this, so let’s consider three of them now.
- Increase contributions – money placed into a pension typically receives tax relief. This means you pay just £80 for every £100 paid into your retirement fund if you’re a basic-rate taxpayer, or £60 if you’re a higher-rate taxpayer. Additional-rate taxpayers may only pay £55. While you can contribute any amount to your pension, the amount of money that receives tax relief is typically limited to your Annual Allowance. In 2022/23, this is the amount you earn or £40,000, whichever is the lower.
- Use “carry forward” – if you have recently received a lump sum, such as an inheritance, carry forward might allow you to make a pension contribution that’s above the Annual Allowance and still receive tax relief. This is because it uses unspent Annual Allowance from the previous three years, which may mean you can contribute up to £160,000 in 2022/23 and receive tax relief.
- Locate lost pensions – according to Pensions Age, an estimated 1.6 million pension pots have been “lost” or are dormant in the UK. If this includes pensions belonging to you, finding them could provide a significant boost to your retirement fund. A financial planner can help you find lost pensions and help you understand your options.
3. Consider your overall wealth
Retirement planning is not only about your pension pot. You should consider using investments, assets and other savings as part of your overall strategy, as this could help increase tax efficiency.
For example, you might want to consider building tax-efficient ISAs alongside your pensions. As you’re allowed to place up to £20,000 a year into ISAs (2022/23), you could build up a significant pot of money that is typically free of Income Tax and Capital Gains Tax.
This could provide tax-efficient cash that could be used to fund holidays, buy a new car, or carry out improvements on your home, without having to dip into your pension pot.
If you invest in a Stocks and Shares ISA, you could also expose the money to greater growth potential, which may help inflation-proof it.
Get in touch
While these three steps could help ensure you don’t run out of money later in life, they’re not exhaustive. For example, care should also be taken when gifting to loved ones in a bid to reduce an Inheritance Tax liability, as it could result in your wealth running dry if you live longer than you thought.
A financial planner could help you understand how much you can gift to loved ones without endangering your long-term standard of living.
If you would like to discuss this further, contact us on hello@ardentuk.com or call 01904 655 330.
As a New Model Adviser top 100 financial advice company and a 2022 VouchedFor Top Rated Advice Firm, you can be assured you’ll receive the very best advice and excellent service.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
