Saving for retirement is an uphill marathon that many people struggle to start, never mind complete. In fact, many people do not face the reality of having to save until it is too late.There are some staggering statistics on the current state of pension savings in the UK.This has prompted me to write this article on how to retire in the UK.

The State Of Pensions

A survey by LVhighlighted that many people don’t even think about retirement, even at ages 45-54 didn’t think about it at all last year. Those that did, spent less than 4 hours a year thinking about it. However, worse than this (in my opinion), is the statistic that 62% of the people in this age group don’t know how much they have saved for retirement.

There is also an issue of people’s expectations vs reality. The same research by LV highlights that those aged 50 would need a pension pot of £311,000 in addition to the state pension to live the quality of life they want. However, the average person surveyed had just £71,342 saved, 39% had less than 50% and 3% had nothing at all.

These numbers don’t even come close to the Guardian’s low estimation that you need £260,000 to retire. In fact, pension pot poverty seems to be so common that you can easily find articles such as“how to retire of the average pension pot of 50,000.”With the state pension around £168 per week and only likely to decrease relative to living costs, you can’t rely on the government to save you.

What Steps Can You Take To Avoid This

Invest In A Workplace Pension

This is probably the simplest and most carefree way to invest. If you choose it can be out of sight, out of mind. Even if you do track the pension value, the valuations are less frequent, so you don’t feel the impact of the market.

Usually, pensions are paid out of your salary, and often by salary sacrifice, meaning that you pay into your pension pre-tax, national insurance and student loan (if you have one).

This is obviously a great way to automate one aspect of your savings. By paying yourself first, you don’t feel the pinch of saving, you just get used to a slightly low net pay.

The bonus point for paying into a workplace pension is that it’s mandatory for an employer to put in 3% to match your 2%. This is essentially free money. My employer matches up to 6%. This is an extra £1,560 per year towards my pension fund!

Invest in An SIPP

If you don’t have an employer or they don’t have a pension fund. Maybe you just don’t want to use it. You can always set up a self-invested pension fund. You can find these with investment companies such as Fidelity. The company I currently use for my investments.

The difference here is that you pay in a monthly amount and the government tops it up by 20%. Making this another tax-efficient way to save for retirement. However, in the same way as a workplace pension, you can’t access this until 55.

Invest In A Stocks & Shares ISA

Despite this not being the tax efficient savings vehicle it does have it’s benefits. In essence, you will be doing the same thing as when you invest in a pension. This is investing in some form of asset allocation, split between stocks, bonds, property, etc. The main difference here is that you will invest your net salary (after tax & NI).

However, whereas you will pay 20% tax on anything outside of the lump sum on your pension, you will never pay tax again on anything you earn or withdraw from a stocks & shares ISA. To caveat, there is a limit of £20,000 a year that you can invest, without paying tax.

The key difference with this type of account is that you can access it at any age, allowing you to make flexible retirement plans. For example, for the sake of argument, say you were able to pay in the £20,000 a year. At a 7% annual return, in 15 years you could potentially have a balance of £521,000 or £850,000 over 20 years. Enough to retire on?

Final Thoughts

The key concepts here are to pay yourself first before anything else goes out. Automate this process, so you don’t have to think about it. Choose at least one of these investment vehicles and start investing as soon as possible. You can read more about how I intend to retire by reading my financial plan.

Lastly, try to calculate how much you will need in retirement and set up a monthly payment plan to make sure you achieve that number. There are many calculators you can use to predict future pensions outcomes (see links below).

It’s critical to set and achieve a number that will allow for sustainable financial independence. You can read why I think this is important regardless of how long it takes.

I hope this information has helped form an idea of how you can retire in the UK. There is no time like the present to start planning and saving for retirement. However, if you have started alreadyI’d love to hear what kind of numbers you are aiming for in retirement and which is your preferred method of saving.

Many readers of this blog are from all around the world, I’m always interested to hear how retirement saving can vary wherever you are. So feel free to comment below, wherever you are reading this from.

Pension Projection Calculators:

https://www.nutmeg.com/pension-calculator

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/pension-calculator