25 Jan State pension is rising, advises London Mortage Broker
Here at Just Us, we don’t just specialise in the best mortgage deals.
We help you with all your financial needs; including pension advice.
Today we bring you news of the new state pension and ask “Will you be able to afford to live off £7,500 per year?”
The State Pension is rising to £144 a week (about £7,500 a year) from 2017, the government has confirmed.
Some people will miss out and others will be worse off, but this is good news for most and the new system is much simpler.
London mortgage broker asks…
The big question is: will you be able to live off £7,500 a year when you retire?
If the answer is no, are you making extra provisions? Are you saving enough into your pension? How much do you need to save?
How could you build a decent income for when you retire?
Creating pension income
For an income of £10,000 a year, for example, a 65 year old retiring today needs a pension pot of around £170,000.
- To build a pension of this size, someone 30 years from retiring should be saving about £190 a month.
- Someone 20 years from retiring, £400 a month.
- And someone 10 years from retiring, £1,070 a month.
The figures assume net investment growth of 5.5%, retirement age of 65 and no tax-free cash. The income you receive will be more or less and based on pension income rates available when you retire. We have assumed a single life, level, 5 year guarantee, monthly in advance annuity. Income from pensions is taxed as earned income. Inflation, which erodes the value of money over time, has not been taken into account.
If the figures sound high, there are three factors that could significantly help you:
Pension contributions benefit from tax relief.
The taxman currently bears up to half the cost of your pension contributions – pension contributions benefit from tax relief. For example, to invest £10,000, you pay £8,000 and the taxman automatically adds £2,000. If you pay 40% tax, you can reclaim up to a further 20%, reducing the effective cost to as little as £6,000. If you pay 50% tax, the effective cost falls to as little as £5,000, providing you pay enough tax.
Tax rules can change and tax benefits depend on circumstances.
Tax free pensions
A pension can grow free of tax – if the investments in your pension go up in value, there’s no tax to pay on the gains, which results in more money going towards your future.
Start saving today
You don’t have to save the full amount now – if you can’t afford the full amount, it’s better to save something rather than nothing. You may be able to catch up later with lump-sum top ups and by increasing your monthly contribution.
But remember, contributing as much as you can now will give you the best chance of having enough income when you retire.