Please Sir ... can I have some more?

Hello again!

Some of you will have read one of my early Blogs, reasons-to-be-cheerful, in which I noted that:

  • For a typical member of the Plan, around £4,000 is being added to their pot each year (by way of new contributions). Of this, only £1,200 comes out of your pocket - £300 is tax relief from the government and £2,500 is from Royal Mail.
  • In addition to their pot from the Plan, they may have other savings (pension schemes from other jobs, or other savings outside a pension scheme)
  • Nearly all members of the Plan are also building up their State Pension. The full State Pension from April 2021 was £9,339.20 a year – it increased to £9,627.80 in April 2022.
  • Review and amend your fund choice. The Default Lifecycle strategy (most of you are in this) ‘de-risks’ on the assumption that members will wish to take their benefits as cash when they retire (or within a few years). You might consider the approach to be too cautious – especially if you expect to continue working part time rather than fully retiring and/or if you wish to take your pot over several years. Other fund choices come with the risk of higher volatility but the potential for significantly higher reward. Switching to the Flexible Retirement Lifecycle (for example) could result in a higher fund value in the longer term.
  • Rent out a room if you are lucky enough to own your own home and you have spare space. The money that you get is tax-free (up to £7,500 a year).
  • Release some of the equity in your home – this might be right for you if you are a homeowner and it is practical to do so.
  • Work part time in retirement. Maybe you’ll be able to earn an income based on a hobby or interest and it won’t feel like work at all!

Maybe you’ve recently received a benefits statement and you’re thinking that the benefits (at age 65) from the Plan, and any other savings, and your State Pension, are not going to provide you with the enough income in retirement – particularly because on average men aged 65 will live to about 85 years and women to about 87 years.

Spend a moment reviewing your expenditure. There are likely to be things that you considered normal to spend money on when you’re working that you really won’t regard as in any way necessary in retirement.

You might expect me to say ‘save more into your pension pot’

Saving more, by paying more into your pension pot, is indeed one (obvious) way to increase your retirement benefit. But there’s a limit as to how much you’re willing to give up now for the prospect of more later. So, you’ll be pleased to learn that paying more into your pot is not the only solution. There are a lot of other things you can do.

What else can I do?

Also, remember that, although you might pay income tax in retirement, you will not have to pay National Insurance contributions on the pension benefits that you receive.

If you are over 55 and have already given some thought about your income needs and expected expenditure in retirement, why not read the https://rmdcp.uk/taking-money-out/who-can-help-you-decide-how-to-take-your-money page and then use the HUB modeller?

Wishing you all the very best,

Ben

Back: 2022 Benefits Statements will land first week of August! Next: When can I take my pot?

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