RETIREMENT EXPERT SHARES BIGGEST MISTAKES PEOPLE MAKE ABOUT PENSIONS
An expert has shared the biggest mistakes people make about retirement. It can be difficult to plan ahead for life after work - with many questions needing to be answered including exactly how much money you'll need to put by, and how much you'll be owed.
And the internet can sometimes be a confusing place with outdated information. But head of retirement analysis at Hargreaves Lansdown, Helen Morrissey, has discussed some of the common issues surrounding pensions.
Helen checked key pension-related questions being asked online using Google data and found 630,000 searches for how much cash you need for retirement. More than 6.5million questions were asked about the state pension, 784,000 on annuity and around 717,000 on SIPP.
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She spoke to The Sun where she answered five major questions surrounding pensions.
How much state pension will I receive?
Helen said: "A full new state pension is currently £203.85 per week. To qualify for any state pension, you need to have 10 years of National Insurance contributions on your record and for the full amount you need to have 35 years' worth."
You can see how much you're due to receive on the gov.uk website. "If you have gaps you can check to see if you were eligible for a benefit such as Child Benefit during that time, which comes with a free National Insurance credit, and if so, you may be able to backdate a claim," Helen added.
"You can also pay for voluntary National Insurance credits to plug the gaps."
Helen added that it’s really important that you check with the DWP before handing over any money to make sure you will benefit. Many people are affected by contracting out, which was a feature of the old pension system.
It has since been abolished but many will still get a lower state pension as a result.
She said: "You paid less NI, which may affect your state pension entitlement, but in return you could receive extra from your workplace or personal pensions instead."
How much money do I need to retire?
Helen said that the Pensions and Lifetime Saving Association (PLSA) has come up with its Retirement Income Standards, which can serve as a useful rule of thumb.
"According to the PLSA, a minimum standard of living - that is an income that covers your basics with a small amount left over for things like occasional meals out - would cost £12,800 per year for a single person and £19,900 for a couple," she said.
Helen continued: "If you want more flexibility in retirement such as the ability to run a car or go on a foreign holiday every year, then a moderate standard of living will cost around £23,300 per year for a single person and £34,000 for a couple.
"When the standards were published, the PLSA said to achieve a moderate income in retirement a couple sharing costs with each in receipt of the full new state pension would need to accumulate a retirement pot of £121,000 each, based on an annuity rate of £6,200 per £100,000."
For a comfortable level, each partner’s pension would need to be £328,000. It’s important to note that annuity rates do fluctuate so you may get more or less for your money depending on when you decide to purchase one.
What is an annuity?
"Basically, an annuity is an insurance product that lets you exchange your pension savings for a guaranteed income for life," Helen explained. "Once bought they cannot be unwound and so it’s really important to make sure it’s right for you, and to include as much information as possible in your application to make sure you get the annuity that best meets your needs."
For example, you can get annuities that will keep paying out an income to your spouse when you die – these are known as joint life annuities. You can also get an enhanced annuity that takes account of your health and lifestyle, and you may get an increased income as a result.
Helen continued: "Different providers offer different rates so it’s really important that you look across the market to get the best deal and you can use annuity quote comparison services to get a sense of what the different providers offer."
Data from HL’s annuity search engine showed a 65-year-old with a £100,000 pension could get up to £4,941 per year from an annuity two years ago but would be able to get up to £7,436 today.
What is SIPP?
Helen explained: "An SIPP is a self-invested personal pension plan. It differs from some other pensions in that you are in the driving seat when it comes to choosing and managing your investments.
"In other personal and workplace pensions, members will often rely on the provider to decide where they are invested via a default fund. SIPPs offer a wider range of investments than other personal and workplace pensions do."
How long does my pension need to last?
Helen said: "Recent ONS data showed the number of centenarians is on the rise. According to the data on Census Day in 2021, there were 13,924 centenarians (aged 100 or older) living in England and Wales, a 24.5 per cent increase from 2011."
Babies born in 2021 have a life expectancy at birth projected to be 90.5 years for females and 87.6 years for males.
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