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Preparing for retirement

Plan for retirement with help from Fair Finance

Retirement is a very complex issue in 2020, particularly taking into account the impact of Covid-19.

In this article, Fair Finance looks at:

  • The current state retirement and pension age;
  • What to do if you want to retire early;
  • What other sources of income are available to you in retirement;
  • What to do if you feel you are being forced to retire before you are ready.

The current state retirement and pension age

In the UK there is no legal retirement age. It used to be 65 for most men, and 60 for most women. But now there is no set age when you have to retire, it is completely up to you.

However, the age at which you receive your state pension is fixed by the government. This age is currently increasing, meaning that there is still a general expectation that you will work up to this point.

Between 2010 and 2018, the state pension age for women rose to 65, the same as for men. However, state pension age is now in the process of gradually increasing to 68 for both men and women.

The full amount of state pension is currently £175.20 per week, before tax. But the actual amount you will be entitled to depends on your National Insurance record. You can check your specific situation by entering your details on the Gov UK State Pension forecast tool.


What to do if you want to retire early

You cannot get your state pension before you reach state pension age. So if you want to retire early, you will need other sources of income to be able to afford this.

Most people depend on their job as their main income. When you retire, this leaves a financial gap that will need to be filled.

This gap may not need to be as much as your current salary, because when you retire the amount of income you need, and your spending patterns, are likely to change. In some ways you will be spending less money. For example, there will be no commuting or other work-related expenses. You will also pay less tax if your income level drops.

But you will still need money for any activities and hobbies that you want to do, and also for household bills and day to day living expenses. Bear in mind that because you will be at home more, some of those bills and expenses will rise.

Let’s take a look at some of the different sources of income available to you in retirement.


What sources of income are available to you in retirement

When considering your income options for retirement, it’s important to remember that most of these are liable to tax, including your state pension.

You will continue to pay tax throughout your retirement. At the moment any income over £12500 a year is subject to tax of 20%, rising to 40% tax for income over £50000 a year. You can find out more about personal allowance and income tax rates on the Gov UK website.

  • State pension

    We have already mentioned the state pension. Even if you are of state pension age, you will not get this automatically, you have to claim it. You will have the choice of whether to claim it immediately or defer it until later. If you defer it, this could increase your payments when you do claim it: although this may lead to you paying more tax on the payments.

  • Workplace or private pension

    As well as your state pension, you might be entitled to a pension either from your current or previous employer or from a private pension scheme if you have ever paid into one. Many workplace and private pensions enable you to start withdrawing money from your pension at age 55, and 25% of this is tax free. You may therefore be able to use money from a pension either to fund early retirement or to sort out other financial matters - such as paying off debts or improving your home - in preparation for retirement. But be aware that if you begin to take your retirement income early you are likely to get a significantly reduced amount overall. Another option would be to use some or all of your pension to purchase a lifetime annuity, which could provide you with a regular income for life. The best thing to do if you have other pensions is to take financial advice so that you fully understand all the options available to you and can make the best decision regarding funding your retirement.

  • Part-time work

    If you are receiving your state pension and/or another pension, you are still allowed to work. This means that you can choose to retire in stages, for example leaving a full-time job, receiving a pension and also doing part time or temporary work. It could be an opportunity to do something that you have always wanted to do but have not been able to afford to up till now. The main thing to bear in mind is that the more different sources of income you have coming in, the more likely you are to exceed your personal allowance and start having to pay tax. When working out your finances you need to find a balance between earning enough extra income to live comfortably, but not then having to pay most of it back in tax.

  • Savings and investments

    If you already have savings or investments, then these will be a boost to your finances in your retirement. Interest rates are currently very low, so it is worth keeping an eye on any new financial products and offers and being prepared to move your savings if needed to get a better rate of interest. Also be careful how you use your savings. It’s tempting to splash out on something special to celebrate your retirement, but also very comforting to know that you have money available in case of any major expenses or emergency situations in future. So try to keep at least some of the money aside rather than eating into it too early in your retirement.

  • Your home

    Your home could help to boost your finances in retirement. If you own your home and no longer need as much space, you could downsize to release some of the equity in the home. Or you may decide to move to a different area where property is cheaper. If you plan to travel in your retirement, you could consider renting out your home while you are away, either long term or doing short term lets via an agency such as AirBnB. Another option is to take in one or more lodgers if you have the space, to provide ongoing regular income.

  • Loan

    If there are specific short term financial needs, a small personal loan could be the answer. Many people assume that once they are retired they would no longer be eligible for loans or other types of credit but this is not the case. At Fair Finance we will consider lending to you irrespective of your employment situation or age. We recognise that everybody is in need of credit from time to time. We consider each case on its merit, and our main priority is simply that the loan repayments are affordable for you.

What to do if you feel you are being forced to retire

Covid-19 has caused a great deal of disruption to employment and retirement. During June and July this year, a study was undertaken by ELSA (English Longitudinal Study of Ageing) to examine how work activity of the over-50’s has been affected by the pandemic.

The study found that many workers aged 54-59 are very worried about job security. Almost 25% of them were on furlough at that point, and 20% of those still working were working fewer hours. 33% of self-employed workers aged 54 and over were not able to work because of the pandemic.

The impact of the pandemic has caused many older workers to change their retirement plans. 13% of the older workers surveyed have changed their retirement plans as a result of the pandemic. 5% are retiring earlier, even if they were not previously planning to do so. But 8% are now planning to retire later due to financial uncertainties caused by the pandemic. This illustrates how disruptive the Covid crisis has been to major life plans.

Many companies are having to downsize because of the pandemic, and are making people redundant. This could be an opportunity for you to retire earlier than planned if you want to do so. However, if you do not want to retire, there should be no pressure on you to accept redundancy just because you are an older worker.

In our recent article about redundancy we explained that you still have certain rights, even during the pandemic. If redundancies are being made, it’s essential that employees are selected for redundancy based on objective criteria and not because of other factors such as age.

If you think you have been selected for redundancy for the wrong reasons, you may be entitled to claim for unfair dismissal. If this is the case, you need to speak to your employer and can have another person with you to help mediate, such as someone else in your organisation, or an external mediator. You can also involve your union representative. If you are not happy with the outcome, you are entitled to take the matter to an employment tribunal.

So, despite the pandemic, remember that it is still up to you when you retire, and that you have employment rights on your side. It is important to plan carefully for your retirement, and we hope that the information in this article helps to point you in the right direction.

If you need any additional financial assistance at this time, do not hesitate to get in touch with us at Fair Finance and we will see what we can do to help.

Check back here soon for more financial and lifestyle tips from Fair Finance.

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