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Home > Retirement Planning

Retirement Planning


Ensuring your family’s continued financial security is of the utmost importance. Unfortunately, retirement planning can be complicated and, without access to the proper resources, leaves many people uncertain of the correct financial decisions when planning for the future.

Current retirement landscape

retirement savingUnfortunately, many Brits do not start thinking about their retirement until middle-age. They often underestimate how much savings they need for their retirement, and by middle-age they have foregone many opportunities to accrue retirement savings. They are usually forced to resort to more aggressive measures to secure retirement savings, which inevitably increases their exposure to risk.

The window for retirement planning hasn’t always been so large. Between 2006 and 2011, employers were legally allowed to force their employees to retire at the age of 65. Employees were able to request to stay on, but their employer was not legally required to honour these requests. The legal basis for these actions was the Default Retirement Age (DRA), which was drafted into law in 2006.

Research has shown, that in 2009, approximately 100,000 workers were forced to retire under the DRA. After public outcry mobilised a reform movement against the DRA, on 1 October 2011, the DRA was abolished, and employers were no longer able to force compulsory retirement of their employees solely on the grounds of age. They were required to objectively justify the compulsory retirement.

State pension

The state pension is the starting point for most people’s planned retirement income, and is an important component in ensuring your future financial security. It provides a regular income upon reaching state pension age. The amount you can claim is based on your National Insurance contributions, and sometimes on your current or former spouse or civil partner.

The maximum state pension you can currently receive is £110.15 a week, and the age of state pension is 65 for men and 60 for women. The state pension age for both men and women is scheduled to increase to 66 by October 2020.


To be eligible to receive a State pension you must fulfil at least one of the following qualifications:

  • You were employed and contributing to National Insurance.
  • You were receiving certain benefits, such as unemployment etc.
  • You were a parent or caregiver, and were receiving certain benefits or credits.
  • Your spouse or civil partner’s National Insurance contributions cover you.
  • You were paying National Insurance contributions voluntarily.

How It’s Paid

Once you reach the state pension age, you do not automatically receive your pension. You need to claim it. To claim the state pension you simply call the Pension Service at 0800 731 7898.

You are able to claim your state pension even if you work past state pension age. Alternatively, you can also defer your state pension and get a higher pension when you claim it.

The state pension is paid on a monthly basis into the account of your choosing. The payments are always made on the same weekday and depend on your National Insurance number.

State Pension Increases

The state pension increases every year according to the one of three factors (whichever is the highest):

  • average percentage growth in Great Britain wages.
  • the percentage growth in prices in the UK according to the Consumer Prices Index (CPI).
  • 2.5%.

To calculate how many qualifying years you already have, and what you are currently entitled to under state pension, use the Gov.UK state pension calculator.

For more detailed information on the state pension, you can visit the Gov.UK state pension page.

Workplace pension

In addition to the state pension, the workplace pension is also an integral component in securing your future financial security. Workplace pensions are funded by a percentage of your paycheque being automatically credited to it on each payday, with your employer and the government making contributions as well. You are unable to take any money out of your pension before you are 55 years old unless you have a serious health issue.


A recent law has mandated that every employer must automatically enrol their workers into a workplace pension scheme if they meet the following requirements:

  • Are between 22 and the state pension age.
  • Earn more than £9,440 a year.
  • Employed in the UK.

Depending on what your employer decides, you will be enrolled in either a defined contribution or a defined benefit pension scheme.

Defined Contribution Pension Schemes

In a defined contribution pension scheme, your employer chooses a pension provider to invest your pension contributions with. The amount you receive when you retire depends on the amount and length of contribution, as well as the performance of your investments. Before you decide on a defined contribution pension scheme, you should consider the following:

  • The ‘management fee’ charged by the pension provider.
  • Their investment track record.
  • The level of diversification.
  • Whether they move your money into lower-risk investments as you approach retirement age.

Defined Benefit Pension Schemes

In a defined benefit pension scheme, there is no investing, which may be more appealing to you if you are risk-averse. Your employer agrees to give you a certain amount of money each year upon retirement. This amount is contingent on your salary and the length of your employ.

For more information regarding the exact pension scheme contributions from your employer and the government, you can view the Gov.UK workplace pension guide.

Workplace Pension Protections

Depending on which type of workplace pension you have, the type of protection you are afforded will vary.

Defined contribution pension schemes

  • If your employer goes out of business, you will not lose your pension since a defined contribution pension is run by your pension provider.
  • If your pension provider goes out of business, but was authorised by the Financial Conduct Authority (FCA), then you are eligible to receive compensation from the Financial Services Compensation Scheme (FSCS).
  • If your pension is in a ‘trust-based scheme’, then you will still receive compensation if your employer goes out of business, but it may be diluted due to the scheme’s running costs being paid by the members instead of your employer.

Defined Benefit Pension Schemes

  • Even if your employer is in financial trouble, they are prohibited by law to use your pension money.
  • If your employer goes out of business, then you are ordinarily protected by the Pension Protection Fund. You will receive full compensation if you have reached the scheme’s pension age, but only 90% if you are below the pension age.

If you have reason to believe that fraud or theft caused a shortfall in your pension, you may be eligible to recover some of the money through the Pension Protection Fund.

You can also contact the Pensions Advisory Service or the Pensions Ombudsman to lodge complaints about the way your workplace pension scheme is being run.

Pension complements

Sometimes, the state and workplace pension are not enough. Fortunately, there are numerous alternatives that can supplement any pension shortfalls that you may encounter. Two of the most common are an Individual Savings Account and the Save As You Earn Scheme.

Individual Savings Account (ISA)

ISAs are a type of savings account that has certain tax benefits. One of the main benefits of an ISA is that the money you contribute from your after-tax income is not subject to income or capital gains tax. There are two types of ISAs, a cash and investment ISA.

Cash ISA

In order to open up a cash ISA, you must be a UK resident and be at least 16 years of age. Cash ISAs are good for short-term savings since the interest is not taxed, and the interest you receive is generally higher than with bank and building society accounts. While cash ISAs do not generally appreciate as well in the long-run as investment ISAs, they have less risk exposure.

Investment ISA

In order to open up an investment ISA, you must be a UK resident and be at least 18 years of age. Investment ISAs are well-suited for long-term investing due to the high returns. However, you must be willing to tolerate an element of risk in your investments.

For more specific information on contribution allowances, taxes, and other miscellaneous information related to ISAs, you can view the HMRC ISA page.

Save As You Earn (SAYE) Scheme

Another alternative to pensions is a SAYE scheme. If your company is running a SAYE scheme, you can save between £5 and £250 each month out of your paycheque. The SAYE scheme can run for either three or five years.

Once the term ends, you are given a bonus, and are able to buy shares in your company at a discount of up to 20% of the company’s share price at the onset of the SAYE scheme. SAYE schemes have numerous  tax advantages as well:

  • The interest and bonus at the end of the scheme is not taxed unless cashed in early.
  • The difference between the share purchase price and the option price is not subject to Income or National Insurance tax.
  • You do not have to pay capital gains tax when you sell the shares, provided you put the money immediately into an ISA or pension.

What are the risks?

If your company goes out of business, then your SAYE money could become worthless. However, you are entitled to up to £50,000 of coverage under the Financial Services Compensation Scheme (FSCS). Even if, at the end of the period, the share price has fallen below the option price, you can simply take your contributed cash, and accept the loss of interest.

For more detailed information, the HMRC has produced a comprehensive guide to the rules of SAYE schemes which can be downloaded here.

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