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Top tips for those retiring in 2025.

27th December 2024

“Planning how to pay for retirement is one of the biggest financial decisions people make. It is important that employees are supported to understand all the options, make informed decisions, and avoid making expensive mistakes with their hard earned savings,” says Jonathan Watts-Lay, Director, WEALTH at work, a leading financial wellbeing and retirement specialist.

To help with this, WEALTH at work has created some top tips below to share with employees who are thinking about retiring in 2025.

WEALTH at work’s top tips for those retiring in 2025:

1. Work out costs in retirement

A good place to start is to work out how much will be needed to meet day-to-day living expenses (such as household bills) and discretionary expenditures (such as holidays and hobbies) in retirement.

According to the Pensions and Lifetime Savings Association (PLSA ), a single person will need about £14,400 a year to achieve the minimum standard of living (this would cover all a retiree’s needs plus enough for some leisure activities such as a week’s holiday in the UK and eating out occasionally); £31,300 a year for a moderate standard of living (one foreign holiday a year and more frequent eating out); and £43,100 a year for a comfortable standard of living (this would cover all a retiree’s needs plus two foreign holidays a year and some luxuries such as regular beauty treatments). For couples, it’s £22,400, £43,100 and £59,000, respectively.

2. Track down all pensions

At least 4.8 million pension pots are considered to be ‘lost’ among the UK population, with 1 in 10 workers believing they could have lost a pension pot worth more than £10,000 . One of the main reasons for this is because a person will have on average 9 jobs in their lifetime , so could easily end up with many different pension pots with several providers which can easily be forgotten about.

There are ways to locate lost pensions including using the Government’s Pension Tracing Service (www.gov.uk/find-pension-contact-details). If the company no longer exists contact Companies House (https://www.gov.uk/government/organisations/companies-house), or charities can be found using the charity register (https://www.gov.uk/find-charity-information). People should ask for up-to-date statements, so it is clear how much pensions are worth. Those with several schemes might also want to consider consolidating them.

3. Calculate all sources of retirement income

Work out the value of all savings and investments. Many people think of their pension as the only source of income in retirement, but other assets such as ISAs and other savings and investments can all be used.

4. Check state pension entitlement before 5 April deadline

Some people don’t realise that you need a minimum of 35 years of NI (National Insurance) contributions to get the full state pension payment. This can be difficult for those who may have taken a career break or time off for child or elderly care. It is possible to purchase NI credits to boost your state pension income at a cost of £17.45 per week or £907.40 to fill a full year’s gap in your record*. But after 5 April 2025, individuals will only be able to claim for 6 years of NI credit, so it may be worth considering filling any extra gaps in your record now.

Those who are approaching retirement can make an enquiry to find out what they are going to receive by requesting a State Pension statement using a form called a BR19, which is available online or by calling the government helpline on 0345 3000 168. Alternatively, if you have a Government Gateway account these details can be accessed online.

5. Consider how to access pension income

It’s important for people to think about how they plan to take their pension savings to generate an income in retirement. For those with defined benefit (DB) pensions, retirement income is usually based on a rate set by the scheme (the accrual rate) and typically is a percentage or fraction of their salary for each year they have been an active member of the pension. There is usually a set retirement age such as someone’s 60th or 65th birthday; however, they may be able to receive benefits earlier or later than this.

Defined contribution (DC) pensions can be accessed from age 55, and people will need to decide how they want to do this. Options include taking income drawdown (where the pension money is still invested but cash is taken as and when needed), buying an annuity (which is a fixed sum of money paid to someone each year), taking it as a cash lump sum, or a combination of these options.

6. Check if retirement is affordable

Another step is working out how much pension savings would be needed to generate your desired level of annual income at retirement. For a couple to reach a moderate living standard (i.e. £43,100 a year[4]), Which?[5] calculated that they would need £376,700 in a pension if taking income drawdown, and £408,600 for an annuity.

For a single person to reach a moderate living standard (i.e. £31,300 a year[6]), they would need £375,100 if taking income drawdown, or £406,900 if they purchase an annuity. People who are single tend to need a bigger amount than a couple as they will have a lower state pension, lower tax-free allowance, and higher relative expenses.

If someone is worried that they haven’t saved enough, it may be worth delaying retirement or continue working part time. This would enable them to make more pension contributions, and they would be able to take advantage of tax relief and employer contributions for longer to build up their savings. In fact, the Office for National Statistics reported that nearly 100,000 of retirees actually returned to work in the twelve months leading up to March 2023[7].

7. Shop around

Before purchasing any retirement products, it is important that people shop around. For example, income drawdown charges can vary depending on the provider, the type of charges, and the size of your pension pot. Individuals should not only check charging structures, but make sure it suits their needs, and that they can withdraw cash as and when they want it and for as long as they need it.

8. Don’t pay unnecessary tax

Unfortunately, some people don’t realise that only the first 25% (up to a maximum of £268,275) of a DC pension is tax-free, and the remaining 75% is taxed at the same rates as earned income. So, if they decide to take their pension as a cash lump sum, they may unwittingly become a higher rate taxpayer.  It may be better for them to take smaller amounts each year from their pension, keeping within their tax bracket, and then top it up with withdrawals from other savings. With careful planning, it may be possible to avoid paying unnecessary taxes which means more income in retirement.

9. Beware of scams

Action Fraud found that pension scam victims lost more than £17.7m in 2023[8]. Whatever someone is planning to do with their retirement savings, it’s vital they check whether the company that they’re planning to use is authorised and regulated with the Financial Conduct Authority (FCA) https://register.fca.org.uk/. They can also visit the FCA’s ScamSmart website which includes a warning list of companies operating without authorisation or running scams www.fca.org.uk/scamsmart.

10. Don’t go it alone

It is vital that individuals fully understand their retirement options and are able to choose what is right for them. Getting financial education, guidance and investment advice at retirement can really help. Pension Wise offer free guidance appointments to talk about someone’s pension options.

With 60% of employers offering or planning to offer pre-retirement planning for employees, the workplace is a great source of support. They may also offer access to a financial adviser which can be especially beneficial at retirement, as they will help someone look at all assets and work out the most tax efficient way for them to fund their retirement, before putting a bespoke plan in place.

Jonathan Watts-Lay, Director, WEALTH at work, comments;

“We spend many years saving for our retirement and deciding how to manage this money is one of the biggest financial decisions people make. It is heartbreaking when people make mistakes with their hard-earned savings which could have been so easily avoided.”

He adds; “This is why many employers and trustees are now working together with financial wellbeing and retirement specialists to help individuals engage with their pensions and savings throughout their career, and then to understand the options at retirement. However, before proceeding it’s essential to carry out due diligence on any providers. This includes ensuring that they are workplace specialists and checks on advice firms should cover areas such as qualifications of advisers, the regulatory record of the firm, compliance processes and the pricing structure.

Ultimately, empowering employees with access to appropriate support at the right time can improve financial capability and resilience which should result in better retirement outcomes for all.”

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