Planning how to pay for retirement.

Planning how to pay for retirement is one of the biggest financial decisions people make. It is important to understand all the options, make informed decisions and avoid making expensive mistakes.

To help with this, WEALTH at work has a range of tips for those who are thinking about retiring in 2025.

A good place to start is to work out all costs in retirement including day-to-day living expenses and discretionary expenditures (such as holidays and hobbies).

A next step could be to figure out the value of all savings including ISAs, general savings and other investments, as well as pensions. But be sure to track down all pensions. There are ways to locate lost pensions including using the Government’s Pension Tracing Service, and those with multiple pensions may want to consolidate them.

Take note that you need a minimum of 35 years of National Insurance (NI) contributions to get the full state pension payment. It is possible to purchase NI credits to boost your state pension income, but after 5 April 2025, individuals will only be able to claim for six years of NI credit — it may be worth filling any extra gaps in your record now.

Next, it’s important to think about how you plan to take your pension savings to generate an income in retirement. For those with a ‘defined benefit’ pension, retirement income is usually based on a rate set by the scheme with a set retirement age.  ‘Defined contribution’ pensions can be accessed from age 55. The options include taking income drawdown (where the pension money is still invested but cash is taken as and when needed), buying an annuity (a fixed sum of money paid to someone each year), taking it as a cash lump sum, or a combination of options.

Before purchasing any retirement products, shop around as charges can vary. It’s also vital to check whether the company is registered with the Financial Conduct Authority (FCA) to avoid being a victim of a pension scam.

When taking pensions income, make sure you’re aware of the tax rules. Up to 25% of a defined contribution pension is tax-free (subject to a maximum of £268,275), with the remaining 75% taxed at the same rates as earned income. So, if taking a pension as a cash lump sum, you may become a higher rate taxpayer. It may be better to take smaller amounts each year from your pension, keeping within your tax bracket.

The final tip is to not go it alone. Understand your retirement income options and choose what is right for you. Getting financial education, guidance and investment advice at retirement can really help.

Jonathan Watts-Lay, director of WEALTH at work, a leading financial wellbeing and retirement specialist 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. This is why many employers now offer retirement support including access to financial education, guidance and investment advice for employees, so it is always worth speaking to them to find out what help is available.”

Employers should get in touch with WEALTH at work directly to discuss putting in place a retirement programme for employees.

Coverage can be found in The Times and Mail on Saturday .