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In order to better understand the needs and concerns of the UK public, we asked 2,000 UK adults about their retirement plans, with some fascinating insights. Here we talk about some of the key highlights and some possible steps if you find yourself in a similar situation. 

Retirement provision in a cost-of-living crisis

During a high inflationary environment and in the midst of a cost-of-living crisis, it’s understandable that many either have less money to put away for their retirement or are worried about funding their later lives.

Concerningly, over half (55%) of UK adults said they have had their expectations of retirement impacted due to the current economic climate, and 15% said the cost-of-living crisis has made it more likely that they will have to delay their retirement altogether.  

Digging deeper, for 22% of respondents, the adverse economic landscape has reduced their expectations of the lifestyle they are likely to be able to afford in their retirement; a fifth (20%) said they have thought more about how much they will need to retire comfortably. A similar number (19%) said they have realised they will need to build a bigger pension pot to fund a comfortable retirement.

More encouragingly perhaps, 30% of 18-34-year-olds have said the cost-of-living crisis has made them realise they need to build a bigger pension pot. Acting at a young age can have a huge impact on your retirement pot, especially given the benefits of long-term investing and the power of compound returns.

How you plan to fund your retirement

The pensions landscape can be quite complex with several types of schemes with different characteristics you should be aware of. These include workplace pensions in various guises, private pensions, and the State Pension.

Of the people we surveyed for our research, nearly half (48%) of non-retired adults said they are planning to use the State Pension to fund their retirement. More men (52%) are likely to use their State Pension to fund their retirement compared to women (45%). Given the full new State Pension is currently £203.85 per week, or just over £10,600 per year, this may not be enough to live on.  

Interestingly, among 18- to 34-year-olds the figure fell to 29%, suggesting they are aware of (as yet unfounded) speculation that the State Pension may not even exist by the time they retire.

Around a quarter (26%) of people said they will be using their workplace defined contribution pension to fund their retirement, with 28% relying on a defined benefit (sometimes known as final salary) scheme.

However, it’s concerning that only around a half (51%) of UK workers questioned know how much they are contributing to their workplace pensions. Of those who said they do know; the average contribution is 9.4% of their salary. Or £279 per month. Around 15% of workers are not currently contributing to any pensions.

The third option is a personal pension or self-invested personal pension (SIPP) of which a fifth (21%) said they would use to fund their retirement. For those able to invest, a personal pension can be a very effective way to build a pot for your retirement and can be held alongside a workplace pension.

Personal pensions also benefit from tax efficiency - your pension provider claims tax relief from the government at the basic 20% rate and adds it to your pension pot (relief at source). Higher-rate taxpayers can claim a further 20%, while additional-rate taxpayers can claim an extra 25%. You may wish to seek advice if you plan to make the most of this.

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For those aged 18 or over and under 40 who can afford to invest, a Lifetime ISA (LISA) can be a good way to plan for your long-term future. While it can be good way to build towards your first home, it can also be a good way to help fund your retirement. The Government allows you to put in up to £4,000 each year until you’re 50.

You can then withdraw the LISA money without penalty aged 60 or over to help you in your later years. As well as benefiting from any potential capital growth, the best part is a 25% government bonus on contributions up to the annual limit. You can hold multiple LISAs, although you can only can only pay into one in each tax year. 

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Other means to finance your retirement

As well as pensions, it’s also worth noting that one in 10 (9%) people plan to sell their primary home to fund their retirement, with 4% selling a second home. We’ll be discussing the topic of pensions versus property to fund your retirement in more detail in a forthcoming article.

Understanding your retirement options

Whatever your age, planning ahead for your post-work years – or making the most of them if you’re already retired – can make a huge difference. Nutmeg has published plenty of articles around retirement to help you to understand the issues and make the right decisions, and you can also book a free call with one of our experts if you wish to discuss your options.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A pension may not be right for everyone and tax rules may change in the future. If you are unsure if a pension is right for you, please seek financial advice.

A stocks and shares Lifetime ISA may not be right for everyone and tax rules may change in the future. You must be 18–39 years old to open one. If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty. So you may get back less than you put in. Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions. If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice. 

The above does not constitute tax advice or recommendations. Tax treatment depends on your individual circumstances and may be subject to change in the future.

Source: Based on a survey of 2,000 UK adults carried out between 27-30 June 2023. Research carried out by Opinium.