With the number of centenarians in the UK expected to more than triple over the next 25 years, now's the time to prepare financially for living longer. Increasing longevity calls for a mindset shift. Rather than planning to fund a couple of decades beyond state pension age, you could be looking at 30 or 40-plus years – especially if you tap into work or private pensions before you reach state pension age.
More than a third of us are concerned about running out of money if we live to 100, according to research by Canada Life. It also found that many people are underprepared: 43% of those aged 35 to 54 have less than £10,000 in savings. If turning 50 only marks the middle of your life, will you have to work for decades more or can you fund a much longer retirement?
Now that far fewer people have defined benefit pensions or use annuities, both of which typically pay a guaranteed income for the rest of your life, there is a real risk of running out of money. But by taking control of how much you save, how long you work and how you stretch your money afterwards, you can look forward to your financial future, rather than feeling fearful.
RETHINK RETIREMENT
PHASE IN YOUR RETIREMENT
Rather than a hard stop, consider gradually winding down work.
'If you receive an income from work, this may also mean you're able to use less of your pension savings, letting compound interest do its work for longer,' says Nick Flynn, retirement income director at Canada Life.
Going part-time or switching to a less stressful job, even if it's lower paid, could help you avoid taking too much, too soon from your pension pot.
CONSIDER FUTURE CONTRIBUTIONS
If you do continue working, beware of taking anything out of a defined contribution pension beyond your 25% tax-free lump sum. If so, you could trigger the Money Purchase Annual Allowance (MPAA), which slashes the amount you can pay into pensions in future to just £10,000 a year.
PEP UP YOUR PENSION
1 FILL STATE PENSION GAPS
Visit gov.uk/check-state-pension for your state pension forecast. Typically, you need 10 qualifying years of National Insurance (NI) contributions or credits to receive any state pension, and 35 years' worth for the full whack.
'Checking for any gaps in your NI record quickly identifies whether you have enough qualifying years to receive a state pension - a valuable source of income, considering the full new state pension is set to rise to more than £12,000 a year from April,' says Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners.
Normally, you can only pay to fill gaps in the last six years, but until 5 April you can make up shortfalls as far back as April 2006.
2 BENEFIT FROM WORK PENSIONS
These are tax efficient and you can stash away up to 100% of earnings, capped at £60,000, per tax year. Under auto-enrolment, you will get tax relief on your contributions and your pot will be topped up by employer contributions.
Pete Matthew, chartered financial planner and creator of the Meaningful Money YouTube channel and podcast, recommends the 'power of regular small increments', starting with adding an extra £25 to £50 a month.
'Ask your employer if they will match extra contributions, as some will add more if you put in more,' he says.
3 SALARY SACRIFICE
This can turbocharge your pension savings. 'Some employers will let their staff reduce their salary or bonus payments in lieu of increased pension contributions. As well as a reduction in income tax, both employee and employer will also pay lower NI contributions,' says Alice.
For example, if you earn £30,000 a year and under auto-enrolment pay 5% into your pension including tax relief, which is £1,500, your net take-home pay after income tax and NI contributions will be just under £23,920.
If you use salary sacrifice to reduce your salary to £28,500, and your employer increases its contribution to your pension by £1,500, your total pension contributions remain the same. However, your take-home pay increases by £120 to just under £24,040, because you are now paying income tax and NI contributions on a smaller sum. Some employers may even be willing to share some of their NI savings as extra pension contributions. The drawback is that your new lower salary also reduces anything calculated on your salary, such as mortgage borrowing, Statutory Maternity Pay or life insurance through your job.
4 START YOUR OWN PENSION
You can also open your own low-cost private pension, whether you are working, self-employed or aren’t employed.
'If you receive a bonus, pay rise or windfall, it could pay off in the long run if you opt to put the extra money into your pension, instead of a low-interest savings account, for example,' says Nick.
5 DIAL UP YOUR RISK
Beware of pension lifestyling. By default, many pension schemes still switch your pension out of riskier assets, such as shares in companies, and into solid cash and bonds, as you approach retirement.
But when funding another 30-plus years, it may be better to brace yourself for a rockier ...
More than a third of us are concerned about running out of money if we live to 100, according to research by Canada Life. It also found that many people are underprepared: 43% of those aged 35 to 54 have less than £10,000 in savings. If turning 50 only marks the middle of your life, will you have to work for decades more or can you fund a much longer retirement?
Now that far fewer people have defined benefit pensions or use annuities, both of which typically pay a guaranteed income for the rest of your life, there is a real risk of running out of money. But by taking control of how much you save, how long you work and how you stretch your money afterwards, you can look forward to your financial future, rather than feeling fearful.
RETHINK RETIREMENT
PHASE IN YOUR RETIREMENT
Rather than a hard stop, consider gradually winding down work.
'If you receive an income from work, this may also mean you're able to use less of your pension savings, letting compound interest do its work for longer,' says Nick Flynn, retirement income director at Canada Life.
Going part-time or switching to a less stressful job, even if it's lower paid, could help you avoid taking too much, too soon from your pension pot.
CONSIDER FUTURE CONTRIBUTIONS
If you do continue working, beware of taking anything out of a defined contribution pension beyond your 25% tax-free lump sum. If so, you could trigger the Money Purchase Annual Allowance (MPAA), which slashes the amount you can pay into pensions in future to just £10,000 a year.
PEP UP YOUR PENSION
1 FILL STATE PENSION GAPS
Visit gov.uk/check-state-pension for your state pension forecast. Typically, you need 10 qualifying years of National Insurance (NI) contributions or credits to receive any state pension, and 35 years' worth for the full whack.
'Checking for any gaps in your NI record quickly identifies whether you have enough qualifying years to receive a state pension - a valuable source of income, considering the full new state pension is set to rise to more than £12,000 a year from April,' says Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners.
Normally, you can only pay to fill gaps in the last six years, but until 5 April you can make up shortfalls as far back as April 2006.
2 BENEFIT FROM WORK PENSIONS
These are tax efficient and you can stash away up to 100% of earnings, capped at £60,000, per tax year. Under auto-enrolment, you will get tax relief on your contributions and your pot will be topped up by employer contributions.
Pete Matthew, chartered financial planner and creator of the Meaningful Money YouTube channel and podcast, recommends the 'power of regular small increments', starting with adding an extra £25 to £50 a month.
'Ask your employer if they will match extra contributions, as some will add more if you put in more,' he says.
3 SALARY SACRIFICE
This can turbocharge your pension savings. 'Some employers will let their staff reduce their salary or bonus payments in lieu of increased pension contributions. As well as a reduction in income tax, both employee and employer will also pay lower NI contributions,' says Alice.
For example, if you earn £30,000 a year and under auto-enrolment pay 5% into your pension including tax relief, which is £1,500, your net take-home pay after income tax and NI contributions will be just under £23,920.
If you use salary sacrifice to reduce your salary to £28,500, and your employer increases its contribution to your pension by £1,500, your total pension contributions remain the same. However, your take-home pay increases by £120 to just under £24,040, because you are now paying income tax and NI contributions on a smaller sum. Some employers may even be willing to share some of their NI savings as extra pension contributions. The drawback is that your new lower salary also reduces anything calculated on your salary, such as mortgage borrowing, Statutory Maternity Pay or life insurance through your job.
4 START YOUR OWN PENSION
You can also open your own low-cost private pension, whether you are working, self-employed or aren’t employed.
'If you receive a bonus, pay rise or windfall, it could pay off in the long run if you opt to put the extra money into your pension, instead of a low-interest savings account, for example,' says Nick.
5 DIAL UP YOUR RISK
Beware of pension lifestyling. By default, many pension schemes still switch your pension out of riskier assets, such as shares in companies, and into solid cash and bonds, as you approach retirement.
But when funding another 30-plus years, it may be better to brace yourself for a rockier ...
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Woman & Home Uk (Digital) - 1 Issue, April 2025