A finance expert has outlined three key things everyone can do to give themselves some protection against uncertainty when it comes to pensions. Shona Lowe, financial planning expert at abrdn, said planning ahead is key when it comes to your income in retirement so that any state contribution tops up your existing pot.
Government insiders say the Conservatives plan to keep the so-called Triple Lock they introduced in 2010 as a way to increase state pensions, but chancellor Jeremy Hunt has said the funding mechanism is “under review”.
Under the Triple Lock, state pensions rise happen each April in line which is the highest out of inflation, average increase in wages across the UK or 2.5 percent. As the UK population gets older the age at which people are eligible for state support is also increasing.
Money expert Ms Lowe said planning, investing and being aware of tax implications to your savings were the three key areas to focus on when thinking about pensions.
She said: “Whilst we can’t predict what might happen, there are still things we can do to take control and make plans.
“When faced with this kind of uncertainty, it’s important to focus on making good financial decisions now that will maximise what you have for the future.”
Ms Lowe added that making a financial plan based on your income and expenditure was the first step towards protecting any future income.
She explained: “The key to your saving journey is to have a robust plan in place that matches your current financial situation and attitude to risk, but one that can flex to adapt to changes to either the financial landscape or your circumstances in the future.
“If you have more income than you need, it’s important to build up and set aside an emergency fund of easily-accessible savings.
“In our current high interest rate environment, you may be able to find a savings account that combines that easy access with an interest rate that allows you to protect the value of those savings from the effects of inflation over time, and using the savings allowance may mean you can avoid or at least reduce the tax you pay on that interest.”
Looking a financial products, or ‘wrappers’, was a good next step, Ms Lowe said, adding that people should “makes sure your money is working as hard as possible for you”.
She continued: “This generally means paying into a pension first so that your contributions get topped up with tax relief and you may even be able to benefit from matching contributions from your employer.
“Next, it will usually make sense to look at ISAs, which allow your savings to grow free from tax. And don’t forget that your ISA options may expand in the future with the announcement of the new British ISA which, once launched, will allow for an extra £5,000 tax free on top of the existing £20,000 tax free allowance.
“You can also look at other investment options such as bonds and shares to utilise more tax allowances, for example Capital Gains Tax (CGT) and the Dividend Allowance.”
Ms Lowe said making good decisions now could be very beneficial for the future, but that planning around tax can be complex and it can be easier and simpler to seek specialist financial advice.
