27 Nov 2018

How to save for retirement

Saving for retirement is important if you want to spend your twilight years in comfort. We’ve got some solid guidance to give you a headstart.

Skip to:
Getting a pension
State pension
Company pension
Personal pension
Saving into your pension
Saving into a Lifetime ISA

Illustration of a book

Getting a pension

Most people consider a pension to be the best way to save for retirement. Here are a few of the benefits:

You can get tax relief on pension contributions. Essentially, this means you won’t pay income tax on money you put into it (and if you do, you can get it back). There are limits if you’re a higher or additional rate taxpayer – for example, you can only get tax relief on up to £40,000 per year.

Pensions won’t stop you getting unemployment benefits. This is because they’re not counted as part of your wealth, while money in a savings account usually is.

Your pension is protected if you go bankrupt. In most cases your pension can’t be taken from you if you go bankrupt, unlike other savings.

State pension

The state pension is paid for by the government. On the new state pension, you can get up to £164.35 per week. It’s unlikely you’ll get enough to live on, so you’ll probably want to save with a company or personal pension too.

You’ll need to pay national insurance contributions (or get national insurance credits) for at least 10 years to get the state pension. You can only access it once you reach the state pension age – this age varies depending on your date of birth.

Company pension

By law, your employer has to provide a company pension scheme. In most cases they must put you on the scheme automatically – this is called automatic enrolment. But you can choose to leave the scheme if you like.

It’s common to have a defined contribution pension through your employer. This means that both you and your employer will pay into your company pension to build up a ‘pot’ of money for your retirement. These contributions are worked out as a percentage of your salary.

Personal pension

A personal pension is usually set up directly between you and the pension provider. You may want to get a personal pension if you’re self-employed, as you won’t have a company pension. But some employees may choose a personal pension for more control over how their money is invested.

There are many different types of personal pensions. You may want to pay for an independent financial advisor to help you choose the right one.

Saving into your pension

The average retired household spends £21,770 a year – and this may well increase with inflation. Based on this figure, a retirement age of 65 and an average life expectancy of 81, you’d need to save almost £350,000.

Of course, how much you need to retire can vary. Whatever figure you’re aiming for, we’ve got some solid tips to help you save enough:

Start early

Saving over a longer period of time can help you put away more money. It means you can make the most of compound interest – essentially, this means your money grows by itself.

Make the most of employer contributions

Having your employer pay money into your pension is a bit like getting a pay rise! Their contributions can really boost your savings, so think twice before opting out of a company pension. Note that some employers will increase their contributions when you increase yours.

Ensure you get tax relief

If you have a company pension, tax relief may be done for you via salary sacrifice. Otherwise, you may need to claim tax back in your self-assessment or by contacting HMRC.

Review your investments

It’s worth reviewing how your pension savings are invested. Your pension provider will typically offer a range of funds to choose from – all with different levels of risk and potential reward. Generally, people can afford to take more risk with their pension when they’re younger and less when they’re older.

Saving into a LISA

The Lifetime ISA (LISA) is a type of savings account that’s designed to boost your retirement pot. It’s not supposed to replace your pension – you can choose to save with both.

The government will boost savings in a LISA by 25%. You can put a maximum of £4,000 into the account every year, meaning you can get an annual ‘bonus’ of up to £1,000.

Should I get a LISA?

If you have a company pension, you probably get more from employer contributions and tax relief than you would from a LISA. But if you’re self-employed, a LISA can be an attractive option.

You can withdraw your savings from a LISA for retirement once you turn 60. But you can also access your LISA at any age to buy your first home. You’ll still get the 25% bonus as long as you meet certain criteria. For example, the property price must be £450,000 or under.

What are some of the risks?

There’s a 25% charge if you withdraw money for a reason that doesn’t meet the LISA’s criteria – this means you’d actually lose money. Unlike a pension, your LISA savings aren’t protected if you go bankrupt. They can also can affect applications for unemployment benefits.


Need more info? Check out our guides to pensions and ISAs.

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