KEY LEARNINGS

  • Understand ways you can save for retirement.
  • Find out how you can prepare you and your family’s finances against uncertainties.

Read time

13 mins

Chapter 1

Chapter 1

SAVING FOR RETIREMENT

Read time

2 mins

You have different options to consider when preparing yourself for retirement, and giving you and your loved ones a secure future.

 

Pensions

A pension is a long-term investment designed to help you build up money for your retirement in a tax-efficient way.

The amount of money you eventually end up with in retirement depends on a number of factors, like the value of your plan when you decide to take out your money. If you are enrolled into a defined contribution pension scheme this value isn’t guaranteed – your pension pot can go down as well as up.

If you're over the age of 22 and you earn above £10,000 a year, your employer will have automatically enrolled you into their workplace pension scheme. This means you pay a minimum of 5% of your income into your pension. Your employer also contributes a minimum of 3% of your earnings, so a total of 8% would have been paid in every month.

Automatic enrolment started with large employers in 2012 and was then rolled out to all companies in 2018, if you are unsure of your pension savings from before these dates head to the government's pension tracing service.

However close or far away retirement is, it's a good idea to check what your employer's pension contribution policy is. That way, you can make sure you're getting the most possible from your workplace pension scheme. Find out more about workplace pension schemes.

If you’re not eligible for your company pension scheme, you can ask your employer to opt you into the scheme. Alternatively, you can set up a private pension, this may be most suitable for the self-employed.

You start receiving the State Pension from the government when you reach a certain age. It's designed to support you through later life. To be able to claim the maximum amount of state pension (which changes from year to year), you need to have made 35 qualifying years of National Insurance Contributions. Watch our video to find out what the difference is between the state pension and a private pension.

To find out more about pensions and retirement saving, head to Taking on your pension.

 

Lifetime mortgage

A lifetime mortgage allows you to take out tax-free cash as a loan secured against your home. This is a type of lending called equity release. You can choose to take your cash either as a lump sum or in regular payments. Homeowners choose to release equity for a wide range of reasons, such as to help with their retirement plans, pay off an existing mortgage, make home improvements or to raise some cash to give as a gift to family or friends.

You remain the owner of your home and the loan needs to be repaid upon the death of either you or the last applicant on the lifetime mortgage, or when you or the last applicant moves into long-term residential care.

There are different types of lifetime mortgages with different interest rate arrangements. They all reduce the value of inheritance you leave behind.

 

Self-invested personal pension (SIPP)

A SIPP is an investment account that offers tax efficiency of a pension product but a wider set of investment options than a standard workplace pension.

For more information on pensions view our films below:

Chapter 2

Chapter 2

PROTECTING YOUR LOVED ONES

Read time

3 mins

When you’re arranging future finances, ensure you plan for the unexpected – especially things that could result in a change of circumstances for you and your family. We don’t like to think about unfortunate events that may be around the corner, but it’s important to consider what the impact on you and your family would be if you or a loved one passed away or became unable to work.

 

Life and critical illness products

Financial protection products, such as life and critical illness cover, can offer a financial safety net in the event of a debilitating illness or death. People often discuss life insurance policies when taking out a mortgage, as it provides a safety net to help you, or your family keep up with repayments if you being terminally ill or your death results in a loss of income. Critical Illness can be used to support with bill payments after a loss of income through being unable to work due to illness.

You may already have some form of cover from your employer – it’s worth checking with them. However, policies provided through an employer may not be written with your exact needs in mind so it is worth reviewing if more cover is required. Speaking to a financial adviser to gain a better picture of the level of cover you may need could be a useful first step. You'll normally be charged for any advice you receive.

The amount you pay for a life or critical illness policy varies depending on the information you provide when you apply. Age, history of illness and your general health are likely to impact how much you pay for your policy.

There are also different types of life insurance policies. Some are linked to investments, for example. Some life insurance or critical illness policies include additional practical and emotional support through difficult times.

 

VIDEOS:

Making a will

Thinking about what the future may hold for your family after you die is an uncomfortable topic, but it’s made easier by knowing you have a plan in place to help your family pass on your assets to who you would like to . That’s where a will comes in. It lets your family avoid the lengthy process and potentially stressful situation of dealing with your estate without instructions on what you want after you pass away.

 

Nominating beneficiaries of your pension

You can also decide how your pension will be distributed among your loved ones by completing a nomination of beneficiaries form for your pension(s) and keeping it up to date. It will help make it clear how to distribute funds to your family or friends meaning the time the process takes can be reduced significantly. Your pension nomination of beneficiaries isn’t binding, but your provider will almost always honour nominations.

While the pension provider will always take note of your nomination form, in order to ensure the funds are not subject to inheritance tax, the nomination can’t be binding. If there is no nomination of beneficiary then the pension pot may fall within the estate and have inheritance tax applied to it. As this is a complex area you should contact your adviser or tax office if you need further guidance. You'll normally be charged for any advice you receive.

Scottish Widows Be Money Well is committed to providing information in a way that is accessible and useful for our users. This information, however, is not in any way intended to amount to authority or advice on which reliance should be placed. You should seek professional advice as appropriate and required. Any sites, products or services named in this module are just examples of what's available. Scottish Widows does not endorse the services they provide. The information in this module was last updated on 09th August 2022.

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