In our Pensions Crisis Coach series, we aim to help ease your retirement worries. Are you concerned you’re not saving enough for your later years, do you want to know if you have enough to retire or don’t know how to find your lost pensions? Email us at money@theipaper.com. We’ll seek to get you on the right track with help from some of the best financial experts and advisers in the business.
Anisa writes: I am 51 years old and earning £107,000 a year but only have £130,000 in my workplace pension. I am looking to retire at 63 – is this plausible?
Alina Khan, The i Paper’s money coach reporter, responds… after receiving your email, I needed to get a better idea of your overall financial situation.
After some back and forth, you told me that as well as your own savings, you have a fiancé who is 35 years old and currently has £85,000 in a workplace pension and £15,000 in an age-protected pension (accessible at 55).
A protected pension age allows some people to access their pension benefits before the normal minimum pension age, which is increasing to 57 in April 2028. Your fiancé will be allowed to access their pension at 55, despite the change.
You also told me your fiancé was made redundant recently and therefore is not currently contributing to a pension, but is hoping to retrain as a teacher this year.
In terms of other expenses, you said your monthly mortgage payments are £2,050 a month and your other expenses add up to £2,500. You also have one dependent child.
Gus Lart, chartered financial planner at Dennehy Wealth, said retiring at 63 with a £130,000 pension would be “tough but not impossible”.
The current state pension age is 66 in the UK for both men and women, but is expected to rise to 67 by 2028 and 68 by 2046 – so you’d have several years of having to fund your lifestyle solely from private income.
Lart said you also needed to check whether your mortgage will be cleared by 63; if it is then your income needs drop significantly, if not, your pension will need to cover it.
To find out when you will clear your mortgage, you can use a mortgage calculator online to estimate the number of months remaining to pay your mortgage. All you need to do is enter your remaining balance, your current monthly payments and annual interest rate.
For your pension – it is good to get an understanding of what funds it is invested in and whether you are happy with this level of risk or would like to take more risk.
Lart said: “You don’t want to be taking unnecessary risks, and whilst the investment choice within a workplace scheme is usually somewhat limited, it’s important nonetheless to be comfortable with where and what the pension is invested in.”
Given you are a high earner, it is also important for you to understand what tax position you are in, as your high earnings mean you find yourself in the 60 per cent tax trap.
This tax trap occurs when individuals earn between £100,000 and £125,140 and for every extra pound you earn over £100,000, you are taxed at an effective marginal rate of 60 per cent – because of the withdrawal of your income tax-free personal allowance.
Contributing more into your pension can be an answer – because you get tax relief at your marginal rate.
Lart said: “The solution is salary sacrifice – redirect enough of your salary into your pension to drop your salary below £100,000, and you reclaim your personal allowance while saving on national insurance too.
“It’s essentially 60p of relief for every £1 contributed. Some employers will even add their own national insurance savings into your pension, giving it an extra boost, so do check this with them.”
Your fiancé will be 47 when you retire, but Lart warns you will need a joint plan that covers his costs in those years after, although this will of course depend on his work.
“At age 35 with £100,000 already saved in pensions, he is in a strong position for his age, and compound growth means even modest contributions now are extraordinarily powerful,” says Lart.
“The £15,000 pension accessible from age 55 provides some flexibility but ideally should be preserved for later life unless absolutely needed,” he adds.
If your fiancé does move into teaching, he will benefit from being enrolled into a teaching pension – a scheme which gives you a guaranteed income for life in retirement.
However, Lart said: “The scheme is pegged to state pension age (68 for him). The earlier he draws it, the less he gets for the rest of his life. Make sure you factor this into any early retirement plans.”
According to Lart, there is a gap between where you are now and where you need to be, but your high income puts you in a strong position if you make some changes now.
“Use salary sacrifice aggressively now, model the four-year state pension gap, and sit down together to map out a joint retirement plan that honestly accounts for when his money can be accessed. With the right action taken today, retiring at 63 is within reach,” he added.