Millions worry about having to spend their final years scraping by on the State Pension but, unfortunately, too many fail to act until it’s too late. Unless you want to spend your final years counting every penny, you need to do these three things now.
1. Get a State Pension forecast
The new State Pension is worth just £8,767.20 a year. Some won’t even get that much as your entitlement depends on how many years of qualifying National Insurance (NI) contributions you have made in your working lifetime.
You need to have made a hefty 35 years in total to get the maximum amount. If you fall short, your pension will be proportionately reduced. Less than a decade, and you get nothing (with a handful of exceptions).
Your first step is to find out how much you are likely to get. You can request a State Pension forecast at Gov.uk/check-state-pension, by calling the Future Pension Centre on 0800 731 0175, or completing application form BR19, available online.
If you have any gaps you can then plug them by making voluntary contributions, which cost around £780 for each missing year.
2. Trace all your old pensions
Your next step is to round up all your old pensions and investments. Pension and Stocks and Shares ISA providers are obliged to send scheme members an annual statement, so dig up your old paperwork. If you have recently moved house, make sure all your pension companies have your new contact details.
If you can’t track them all down you can get help free help from the Government-backed Pension Tracing Service or by calling 0800 731 0193. It should also help you trace schemes run by companies that have ceased trading.
If you have a hotch-potch of pensions you could consolidate them all into a self-invested personal pension (Sipp), run by the likes of Aegon, AJ Bell, Canada Life, Hargreaves Lansdown, Interactive Investor, PensionBee and The Share Centre.
However, think very carefully before transferring out of a final salary defined benefit company pension, as these have valuable benefits you cannot replicate elsewhere.
3. Invest for the future
Now you know where you stand, the next step is to boost your nest egg by investing extra money in your own name. If you have access to a company pension, make sure you contribute, as you’ll get employer contributions and tax relief on top. Do not opt out!
Then, set up a tax-free Stocks and Shares ISA. This allows you to save up to £20,000 this tax year in a blend of stocks and funds, and take all your returns free of income tax and capital gains tax.
This is simple to do by setting up an account with one of the leading investment platforms. Here are four that our sister site WalletHero rate highly. You can either invest lump sums, regular monthly amounts, or a combination of the two.
While stock markets are volatile in the short-term, in the longer run they’re probably the best way to build your retirement wealth. Certainly better than relying on the State Pension alone.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.