How to save for retirement

This content was reviewed and approved by our in-house advisory panel.

8 ways to help you save for your retirement

Before you hit retirement age, you’ll need financial security to help see you through your golden years in comfort. Your older self will be grateful you prepared earlier in life.

But it’s not enough to just rely on your State Pension when it comes to financial security. From pension contributions to investments, we’ve suggested some ways to help you save for retirement.

1. Enrol in a pension plan

One way to ensure you have an income when you retire is to enrol in a pension scheme. If you want to and it suits your financial situation, you can open multiple pension plans too. There’s no limit. However, there are a few things to know about pension schemes before you enter them.

Workplace pension

It’s now a legal requirement for your employer to offer you a workplace pension. From the age of 22 years old, you’ll be automatically enrolled into your workplace pension as long as you meet the criteria for it. To qualify, you’ll need to:

• Be classed as a worker.

• Be aged between 22 and your State Pension age.

• Earn at least £10,000 a year.

• Usually or always work in the UK.

You can choose to opt out of a workplace pension, but you’ll have to manually opt back in again. During this time, neither you nor your employer will make any contributions. If you’re between the ages of 16 and 21, you can opt to manually enrol into a workplace pension and your employer can’t refuse.

Since 2019, the minimum pension contributions have worked out at 8%. Your employer must contribute at least 3%, but they can choose to match your contributions at 5% if they want to or even exceed it. You should be able to see your pension contributions listed on your payslip.

Private pension

Anyone can own a private pension, but they’re especially ideal if you’re self-employed, don’t work or want another pension option when you retire. Private pensions can also be managed by family or friends who want to put some money aside for you when you reach retirement age.

You can set one up with a pension provider, paying them either regular amounts or a lump sum each time. They’ll invest it on your behalf and manage your pension for you, offering regular check-ins and updates.

State Pension

Your State Pension will offer you regular payment from the government once you hit State Pension age. However, the amount you get each month is determined by your National Insurance record. That’s why it’s not a good idea to just rely on your State Pension when you retire.

2. Increase your contributions

If you haven't reached retirement yet, you may still have time to boost your pension contributions by as much as you can afford (subject to limits on how much will attract tax relief). It’s also worth speaking to a financial adviser before you do so to make sure it’s the right decision for you.

If you’re still working, this is a popular option, especially if your employer will partly or fully match your extra contributions. At the moment, your employer can offer anything from 3% towards your pension contributions, whilst you pay 5% as well.

Salary sacrifice schemes

Your employer might offer a salary sacrifice pension scheme as a more tax-efficient solution. You’ll agree to reduce your salary, and, in return, your employer will pay the difference into your pension pot. This will also be accompanied by their own contribution of at least 3%. For this to work, at least 5% of your salary will be sacrificed towards your pension.

3. Consolidate your pensions

If you’ve job-hopped or have multiple pension schemes open, you might benefit from consolidating them. However, before you do, you’ll need to discuss your options with a financial adviser first as you might lose out on certain perks or be charged large exit fees.

Done correctly with the guidance of a financial adviser, you might experience a range of benefits from consolidating your pension. These include:

• Simplicity when tracking your total pension value.

• Easy access to monitor your savings.

• Lower product charges.

• Keeping on top of pension and tax allowances.

• Possible access to greater investment choices.

4. Savings and investments

If you want to enjoy your retirement and live comfortably, you might need some investments and savings accounts to help you top up your income. Alternatively, there are a range of savings and investment options open to you that help you save for retirement.

Lifetime ISA

The Lifetime ISA means you can now save for retirement and receive a 25% bonus from the government. You’ll be able to save up to £4,000 each year and it will count towards your annual ISA limit. It’s possible to hold a regular ISA and a Lifetime ISA at the same time.

Once you hit 50, your monthly payments and government interest will be stopped. You’ll still be able to earn interest supplied by your bank however. At 60, you’ll be able to start withdrawing money from your ISA. The only other times you can claim money from your ISA is:

• If you are purchasing your first home and own no other properties.

• If you are terminally ill and have less than 12 months to live.

Alternatively, if you’re over 55 (57 from April 2028), you could take your tax-free cash from your pension and invest some, or all of it, in another savings account. You might also use it to clear costly debts like your mortgage.

Property

Properties or buy-to-let can be a source of income for you during retirement. Although they have their own expenses to consider, receiving rent on a monthly basis that covers the mortgage, and a little extra, can help to supplement your income. It’s a good idea to spread out your investment where you can, leaving you with various sources of income.

5. Speak to a financial adviser

With so many options for retirement, and a lot of financial jargon, it’s often difficult to know what’s right for you. That’s where retirement advice comes in. It’ll completely remove any confusion you may have and offer guidance on products that fill you with confidence.

As experts in their field, financial advisers are fully equipped when it comes to the ever-changing landscape of retirement. From annuities to consolidating pensions, or simply just knowing where to start, retirement advice can help you clear your mind and prepare to retire.

6. Defer taking your State Pension

As you reach retirement age, you may decide to continue working or feel that you don’t need to claim your pension straight away. You’ll need to claim your State Pension once you reach the correct age, however,  you can choose to defer it. By deferring your State Pension, your payments will increase by 1% for every nine weeks deferred. If you defer your pension for a year, your State Pension could increase by 5.8%.

7. Continue working

Rather than fully retiring, you could reduce your hours or take on another part-time role. It would mean a steady income that wouldn't reduce the pension savings you already have. This could give you some more budget towards your retirement, enabling you extra money to either save or spend.

Working part-time could cover your essential living costs, such as bills or food, and your pension fund would still be there for emergencies and occasional treats. Alternatively, you could choose to save your income from any part-time work, putting it away for a special holiday or to make retirement comfortable when you do stop working.

What is right for you?

Everyone’s situation is different, and we’ve all got unique circumstances to consider. The products and investment opportunities that work for someone else might not for you. That’s why we always suggest seeking advice from an expert who can walk you through the process. It all starts with a quick chat. After you’ve spoken, they’ll offer non-judgement support and advice, helping you to better understand your retirement plan and needs.

How can LV= help?

We’re passionate about helping you retire comfortably. Our retirement advice service is always on hand to walk you through retirement preparation and offer guidance on the best products available.

Why not get in touch today?

Please note that the information given on this page should not be seen as advice, please speak to your financial adviser for advice.

Any references to taxation are based on our understanding of current legislation and HM Revenue & Customs practice which can change.