15th May 2019 at 2:28pm
By Eleanor Tucker
For many of us of a certain age, the way we lived our lives when we were growing up seems like a lifetime ago.
Payphone kiosks in the street for instance (yes, you actually had to put 10p into a slot to speak to someone) and three channels on the television for a few hours a day. Sound familiar?
But it wasn’t really that long ago – it’s just that times have changed rather a lot.
How we retire has changed too. Most people used to work until age 60 or 65 and then retired, relying on money from the State Pension and a company one, if they were fortunate, for their income.
Things are very different now for a number of reasons. More people save into their own pensions, boosted by auto enrolment and the growth in workplace pension saving. Modern pension freedoms now let many take their pension savings from the age of 55 if they want to. And the State Pension age? It’s 65 and rising in line with an overall increase in life expectancy.
This all means many of us can expect a very different – often longer – retirement than previous generations. Retirement is now a lot more fluid and, with that, there’s more to think about – how we pay for it, live it and (hopefully) love it.
Living it doesn’t necessarily mean stopping work permanently, it could be taking a break and going off travelling or working overseas. Or what about working part-time, or starting something new if that’s what you want.
How will you fund it?
And that opens up new ways to fund your life in retirement over what could be 20 years or more, getting income from your employment, a personal or workplace pension, self-employment and even your home through equity release; mixing it up until your State Pension kicks in.
Your pension savings
Thanks to pensions freedoms, introduced four years ago, you can now access your life savings from age 55 (although this may change in future) and it’s up to you when, how and what money you take, as long as you have the right kind of modern pension plan.
Take some as a lump sum, with the first 25% tax free, or all if you’ve got enough money elsewhere to live on. Or leave your pension savings invested to have the chance to grow and take an income, or a mix of these.
If you prefer, you can just leave your pension savings untouched and still invested – and use other ways to generate income such as ISAs instead. Remember as your pension is invested the value can go down as well as up and could be worth less than was paid in.
Some organisations actively want to hire semi- or already retired workers who come with a lifetime of experience and knowledge to bring to jobs such as nannies, gardeners or a non-exec role in a company.
These jobs usually offer a company pension, as long as you earn enough to meet the criteria, so that you can keep working and adding to your pension savings.
If you’re working after you’ve started to take your own pension savings there may be more tax implications to consider.
Have a read of our article ‘can I take money from my pension and keep paying in?’ to help keep you right.
Love it: Set up your own business and be your own boss
Of course, not everyone wants to be on the payroll.
A recent report highlights the rising number of those wanting to start their own business in retirement.
While travel is important for many people, as is making time for a hobby, one in 10 Brits say starting their own business in retirement is their goal*.
And that could be more achievable with some pension savings to help get that dream off the ground.
Then there’s the rise of the ‘pensionpreneurs’, taking advantage of new ways of earning additional income, such as renting out a room. According to Airbnb, in 2018, 8.4 million guests were welcomed by UK ‘hosts’, who typically earn £3,100 per year for an average of 36 nights**.
Unlock the equity in your property
With significant property wealth tied up in many homes, an increasingly popular way of funding some of your retirement is by using equity release to unlock some of the value in your home.
A new report from the Equity Release Council has revealed that demand for equity release continues to grow and become more mainstream, with a double-digit rise in customer numbers across the UK***.
It’s a rise fuelled by an increase in the number of equity release products in the market and improved interest rates – and the fact that many in the UK are property rich but want or need to top up their retirement income by using a valuable asset.
Over the course of 2018, the report explains that “homeowners over 55 years of age accessed 50p of housing wealth for every £1 of savings withdrawn through flexible pension payments, highlighting the increasing role of property wealth as a supplementary source of later life funds”.
There are different types of equity release which those age 55 and up can apply for to take cash out of their home, tax free (minus any outstanding mortgage.) A big draw for many is the fact they don’t have to move home as a result.
One option is a lifetime mortgage, which is secured against your home. This allows you to continue to own your home after releasing money from it. There’s no requirement to make regular monthly repayments as the amount that you have released, plus any interest, is repaid from money made when the property is sold.
Bear in mind that this is paid from your estate and the amount you can pass on to your loved ones could go down. Releasing money can also affect any means-tested benefits you’re entitled to.
There are lots of things to consider and it makes sense to find out more if you’re thinking about it. You can read more about equity release on our website.
Live, love and fund your retirement: Here’s some simple things you can do
- Try our pension calculator
You could see how much you could have in the future from your pension by using this simple tool. And if you want, take the opportunity to potentially boost your pension by saving a bit more.
- Get some support
To get an idea of what income you are projected to have in retirement try our (tool) and to understand how to take what you might need in retirement tax efficiently, it makes sense to speak to an adviser. If you don’t have an adviser, try unbiased.co.uk or you can get further free information from the Pensions Advisory Service.
- Find out about your State Pension
Knowing what you might get – and when – can help you plan your overall retirement income. Over 13 million have already checked when they’re eligible for their State Pension. It just takes a couple of minutes to find out here.
Elle Tucker is a freelance journalist writing on behalf of Standard Life.
Tax and legislation may change and the information here is based on our understanding in May 2019. Your own circumstances will have an impact on tax.
By taking money from your pension early, you could run out of money sooner than you expect if you take too much or if the remaining invested fund doesn’t perform as expected. This article shouldn’t be taken as financial advice.
*Aviva, Pension Report: Retirement Reality, 2018
** Equity Release Council, Spring 2019 Equity Release Market Report