Long term planning for retirement

This fact sheet is about long term planning for retirement. People who are planning to retire soon could see our Ready for retirement fact sheet.

Planning ahead

Retirement may be a long way away and it may not seem like a priority if you have many years left before you reach retirement age. However, most people find that they need more money than the state pension provides on retirement. Planning now can help to ensure that you have sufficient funds and are ready to retire when the time comes. It is never too soon to start saving for retirement. Even a small pension is better than no pension at all, see pensions section below. 

How much money will you need to retire?

The amount of money you will need will very much depend on the lifestyle you would like and the commitments you are likely to have. Points to consider include:-

  • utility bills
  • any outstanding mortgages/rent
  • any outstanding debts
  • general upkeep of your home
  • hobbies/holidays.

The Money Advice Service (MAS) has an online budgeting tool that can help you to manage your money and plan your budget. For further information, see the MAS website.

When planning for retirement it is also worth considering that your needs by retirement age may be very different to those you have now. Additional costs could include the cost of taxi fares for those with impaired mobility and impaired sight and hearing, increased difficulty in maintaining body temperature leading to higher fuel bills and greater home security needs. Whilst moving abroad, perhaps to a sunnier clime, may seem  attractive for retirement purposes, the extent of community and family support network available to you can minimise some of the disadvantages and expense of ageing. It is also important to bear in mind that your partner’s health and mobility will be equally influential when planning for retirement. The death of a partner can lead to isolation if you have chosen to retire far from family and friends. For further information about life after retirement, see our Ready for retirement fact sheet.

State retirement age

The official retirement age is gradually being raised, so while many women can claim their state pension once they are 62 and men at 65, this will rise to 66 for both genders by 2018 and to 67 by 2028. The minimum retirement age in 2028 will then be set to ten years below the state retirement age. This means that anyone with a company or private pension will not be able to take the benefits until the age of 57 at the earliest. The only exception to this generally is if you have to retire due to serious ill health. Any further increases in the state retirement age will be shadowed with a ten year gap in the minimum retirement age, for example, it the state retirement age increases to 68 the earliest one will be able to take other pension benefits will be 58.

State pension

When planning for your retirement, start by checking how much your basic state pension will be worth. If you reached state pension age between 2014 and 2016 you will need 30 years of national insurance contributions/credits in order to qualify for the full state pension. If you reached pension age in 2016 or later you will need 35 years of contributions/credits.

The government website has a state pension calculator that gives you an estimate of what you might receive when you reach state pension age. You can only get state pension when you reach state retirement age. People who reach state pension age after 6 April 2016 will get a single state pension instead of the current basic and additional pension. For more information on the current basic and additional pension see our Ready for retirement fact sheet. The new pension changes will be implemented by April 2016, and may be subject to further change. For the most up-to-date information, see the government website.

Please note, people can request a state pension statement (previously known as a state pension forecast)  via the Department of Work and Pensions (DWP). This request can be done on-line and is based on an individual’s personal employment history. For further information, see the government website.

Single tier state pension

In April 2016 the single tier state pension was introduced. The full rate of single tier pension will be up to £168.60 per week, please note, these figures are applicable to years 2019/2020. To obtain this full rate individuals will need 35 years of national insurance contributions/credits. A higher pension may be payable if an individual has any entitlement to additional state pension, for example, a graduated pension, SERPS or an S2P that accrued prior to 6th April 2016. For further information, see the government fact sheet.

National insurance credits

People who are not making national insurance contributions may be entitled to a credit. Examples include, people claiming job seekers allowance (JSA), people in receipt of child benefit for a child under the age of 12 and approved foster carers. For further information, including eligibility criteria, see the government website.

Topping up your national insurance contributions

People who do not have enough qualifying years of national insurance contributions may be able to top up their state pension by paying voluntary contributions. For further information, see the government website.

National insurance contributions while working abroad

National insurance contributions paid in a European Economic Area (EEA) country, or one that has a reciprocal agreement with the UK can help people to qualify for the basic state pension. For further information, see the government website.

Please note, at the moment is it unclear as what impact Brexit might have on people who are working in the EEA. For up-to-date advice you can seek information from the Pensions Advisory Service.

Delaying your state pension

Delaying the date at which you start getting your state pension could make your pension worth more. The MAS website has a pension calculator that can show you what you might get from your state pension depending on the age you start paying in, and the impact of delaying the start date of your pension. For further information, visit the MAS website.


Pensions are generally seen as a practical way of saving money towards retirement. If you are just starting out on your career you could consider a small, flexible pension that you can take with you when you change job. Pharmacists who choose to locum may also benefit from a flexible pension.

There are two main types of pension, work place and personal pensions. Adviceguide, the on-line guide from the Citizens Advice, recommends that you review your pension situation regularly, as changes to your circumstances, for example, marriage, children or divorce, may lead to differing retirement needs. On retirement, you will have a pension pot, which you can choose to use in a variety of ways to provide a retirement income. The rules on how people can use their pension pots are changing. In some circumstances the whole of the pension pot can now be cashed in.

For further information on making the right choice about retiring and taking pension benefits, see the Pensions Advisory Service (PAS) website and the MAS website.

Workplace pensions

Many employers offer a pension scheme for their employees and by 2018 it will be compulsory for all employers to do this. For further information, see automatic enrolment below. With a workplace pension (also known as occupational or company pensions) your employer will contribute towards your pension and you will receive tax relief on your contributions. Usually, employees participating in a workplace pension will have a percentage of their pay put into their scheme every pay day. Anybody who pays more than the basic rate of income tax should double check with their pension provider to ensure that they are getting full tax relief. If the value of your tax relief exceeds your annual income the HMRC can ask for a repayment.  For further information, see the government website.

Some employers may offer salary sacrifice as an option. The employee gives up a part of their salary, which the employer then puts, along with their contribution, into the pension scheme. For further information on the advantages and disadvantages, see the PAS website.

There are several different types of workplace pensions, see below. Some companies offer cash balance plans, which are a combination of both defined benefit and defined contributions based pension schemes.

Salary-related pension/defined benefits schemes

Some employers may offer salary-related pension schemes, for example, final salary or average salary schemes. These are also known as defined benefits schemes.

Defined contribution pension schemes

Unlike the salary related pensions schemes, defined contribution pension schemes do not have a defined final benefit. The amount that you receive is based on the amount invested, how long it has been invested and the success of these investments. Sometimes employees are offered a choice about how their contributions are invested.

For further information about the different types of workplace pensions, see the  PAS website.

Automatic enrolment 

All eligible workers are now automatically enrolled into a workplace pension scheme. Groups such as agency workers and freelance workers will be included in the automatic enrolment scheme. Employees will pay into a pension pot, but so will the government, via tax relief, and the employer. The pension schemes for automatic enrolment are chosen by employers, but any scheme they choose must meet minimum standards set by the government.  People will be enrolled into this scheme by their employer if they:-

  • do not already have a workplace pension; and/or
  • are aged between 22 and state pension retirement; age and/or
  • work in the UK; and/or
  • earn more than £10,000 per annum.

The government has an interactive tool to help you find out when you will be automatically enrolled. If you have been or are going to be automatically enrolled into a workplace pension scheme you can choose to opt out if you wish. If you would like to opt out you will need to contact the pension provider that your employer has chosen. Your employer should have all the information you need to opt out.

People who have built up considerable pension savings and have protected their lifetime allowance, the lifetime allowance is the maximum value of pension savings that can be accrued without giving rise to tax, should be careful with automatic enrolment schemes. The majority of pension protections, for example, primary, enhanced and fixed protection, will be revoked if an individual makes contributions to any other pension plans.

Given that the workplace pension is an ‘opt out’ scheme, people with protected allowances will need to opt out if they wish to keep their protected lifetime allowance. Equally, members of final salary schemes, also known as an occupational defined benefit, may wish to seek advice on how much of the lifetime allowance this pension represents.

National Employment Savings Trust (NEST) pensions

NEST is a pension scheme set up by the government to help employers to provide automatic pension enrolment. Many employers who did not previously offer a workplace pension are likely to choose NEST. You can save with NEST if:-

  • your current employer enrols you; and/or
  • a previous employer enrolled you; and/or
  • you are self-employed; and/or
  • you are given a share of a NEST pension following a divorce or the end of a civil partnership.

Any previously held pensions cannot be transferred into a NEST, and NEST savings cannot be transferred to any other pension provider. For further information, see the MAS website.

Personal and stakeholder pensions

People who will not be included in a workplace pension, for example,  self-employed or unemployed people who can afford to pay into a pension, may opt to take out a personal pension. Personal pensions can also be used to top up a state/work pension. Unlike a workplace pension where the employer chooses the scheme, someone taking out a personal pension chooses their own pension provider. Points to consider when choosing include:-

  • does the scheme allow you to choose investments that suit your ethical or religious beliefs
  • does the scheme offer flexible payments
  • does the scheme have penalties for transferring to another provider.

People who do not want to choose which funds their pension scheme invests in can opt for the default fund. This is chosen by the pension provider, but it has to meet conditions set out by the government. For further information, see the PAS website.

There are many different pensions to choose from. It is a good idea to shop around before deciding on a pension provider. For further information about choosing a pension, see the MAS website.

Some people seek help from a financial adviser when choosing their pension. For information about how to choose a financial adviser, see the Adviceguide website.

Stakeholder pensions (SHPs)

SHPs are similar to defined contribution pension schemes. They offer flexibility and have been designed to be accessible to all. Other people can also contribute towards your SHP, for example, your employer or your spouse.

Group personal pensions (GPPs)

GPPs often have lower charges than individual personal pensions, and sometimes can be offered by employers. However, the contract will always remain between you and the pension provider. Employers can contribute towards this type of pension, however they are not obliged to do so.

Self-invested personal pensions (SIPPS)

A SIPP is a type of personal pension. The main difference is that SIPPS offer more flexibility in the types of investments a person can choose. SIPPS are likely to appeal to people who want to manage their own fund and will involve dealing with and switching investments. These are best suited to people with experience in investing.

For further information about the range of personal pensions available, see the PAS website.

Pension charges

Pension providers may charge setting up and management fees. Ordinarily, a percentage is deducted from the pension fund. Your pension statement should have full details of all charges incurred.

Transferring your pension to another provider

It is possible to transfer your pension pot to another scheme, for example, if you are  changing jobs, have found a better pension provider, or have more than one pension and would like to bring them all together. Normally, it is possible to transfer a pension pot from one UK scheme to another UK registered scheme.  There are a number of different points to consider if you are thinking of transferring your pension pot, including possible financial implications, and you may need to seek advice from an independent financial adviser with specialist qualifications in pension transfers. For further information, see the PAS website.

Transferring your pension overseas

People moving overseas may be able to transfer from a UK to an overseas pension scheme. Firstly check that the overseas pension provider is on the government list of qualifying recognised overseas pension schemes (QROPS). This list is on the government website. If the overseas pension provider is not on this list, UK pension schemes can refuse to make the transfer, or any transfer could attract a minimum of 40% tax. In some instances, UK tax may be payable after transfer. Your pension provider can tell you which charges may apply to you.

Early retirement

Whilst state pensions cannot be accessed until the official state retirement age, some  personal/work pensions can be accessed as early as 55 years of age. Early access will mean that there will be less money in your pension pot and therefore you will receive a smaller pension. In cases of severe illness it can be possible to access a pension even earlier, your pension provider will be able to tell you more about this. For further information, see the PAS website

Savings and investment products

Paying into a pension scheme is not the only way to plan for retirement. There are a whole range of alternatives that have the potential to provide an income on retirement. Other options include:-

  • New Individual Savings Accounts (NISA) and National Savings and Investments (NS&I)
  • buying and selling stocks and shares
  • investing in commodities/property/currency.

Of course, there is no such thing as a risk free investment. The MAS website has a beginners guide to investing. People may wish to seek help from an independent financial adviser (IFA). For information about how to choose a financial adviser, see the Adviceguide website. The Financial Conduct Authority (FCA) is the body that authorises financial advisers. You can check with the FCA to make sure that an adviser is authorised. The website contains a section offering advice to consumers on subjects such as avoiding scams or how to make a complaint. For further information, contact the FCA Consumer Helpline on 0800 111 6768, or visit the FCA website.

Useful organisations

Pensions Advisory Service (PAS)

PAS offers free and impartial advice to people with workplace and personal pensions. You can call the helpline on 0300 123 1047, or for further information, see the PAS website.

Money Advice Service (MAS)

MAS was set up by the government to provide free and impartial money advice. You can call the helpline on 0300 500 5000, or for further information, see the MAS  website.

Financial Ombudsman Service (FOS)

The FOS investigates consumer complaints about banks, insurance and finance firms and pay day loan companies. For further information, visit the FOS website.

Financial Services Compensation Scheme (FSCS)

FSCS is the UK statutory compensation fund for customers of authorised financial services firms. It can compensate consumers when a financial services firm is unable to pay claims made against it. For further information on the role of the FSCS, see the FSCS website.

Pensions Ombudsman (PO)

The PO investigates complaints abut how pension schemes are run. For further information, visit the PO website.