The time to buy quality stocks is when they’re temporarily out of favour. I continue to think there’s no shortage of examples out there in the UK market. As luck would have it, one from the FTSE 250 (in which I’ve already started building a stake) reported to investors earlier today.

FTSE 250 laggard

Price comparison site owner Moneysupermarket.com (LSE: MONY) has stubbornly refused to get involved in the recovery in the UK stock market until today. Bar one or two flushes of positive momentum, its share price has been drifting lower for some time now. Today’s interim results provide some context for this. 

Revenue sank 11% to a little over £162m in the first half of 2021. Pre-tax profit fared even worse, tumbling 31% to £28m. I pretty much expected this. Like many in the market, Moneysupermarket continues to be impacted by the pandemic and the ongoing impact on consumer behaviour.

However, I think there are reasons to be optimistic. Moneysupermarket is still clearly generating a healthy amount of cash. Margins were up, as was the amount of net cash held by the company on its balance sheet.

Holding the interim dividend at 3.1p per share was another encouraging move. Sure, I’d prefer payouts to be increasing. Even so, the fact that it wasn’t reduced is indicative of confidence on the part of management.

Patience required

Naturally, the recovery won’t happen overnight. The spike in Covid-19 infections, while expected, means the rest of 2021 could still be tricky for the FTSE 250 member. The markets in which MONY operates — insurance, money (that is, cards and loans), home services (like energy), and travel — are also “recovering at different rates“, according to the company.

Even so, CEO Peter Duffy did say that he expected “more normal trading conditions” for the company’s markets next year. This may explain why the shares are up strongly today. I personally think we’ll see a dramatic improvement in revenue at MONY’s travel insurance arm as restrictions lift overseas. 

At 19 times earnings before markets opened, MONY still looks like a bargain to me. I’d feel comfortable buying more today. 

Another bargain?

Another company that’s seen buying pressure this morning has been online pension provider PensionBee (LSE: PBEE). Like Moneysupermarket, this new-stock-on-the-block also released half-year numbers to the market today. 

Helped by increased marketing, PensionBee has been attracting more people to its services. Invested customers rose 81% to 92,000 over the reporting period. Perhaps we shouldn’t be surprised by this. Make of it what you will, but PBEE was named as a ‘Best Buy’ in five categories at this year’s Boring Money Awards.

Most importantly, it seems to be hanging on to its customers. Retention rates remained at more than 95%. At £2bn, assets under administration (AUA) were also more than double that seen at this point in 2020. 

Based on today’s numbers and the potential demand for online pension consolidation going forward, I wonder if the shares may turn out to be another bargain in time. Right now, however, I think it’s wise to keep my feet on the ground. PBEE remains loss-making (and won’t be profitable until the end of 2023, according to the company). That’s a long time to keep my money tied up in an illiquid stock. 

Despite today’s encouraging share price rise, I’ll only be adding this promising small-cap to my watchlist for now.

The post This FTSE 250 stock still looks a bargain to me! appeared first on The Motley Fool UK.

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Paul Summers owns shares in Moneysupermarket.com. The Motley Fool UK has recommended Moneysupermarket.com. 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.

Is investing in buy-to-let instead of a pension actually a sensible strategy though? Let’s take a look at some of the risks.

All your eggs in one basket

One major problem with buy-to-let as a pension is that all your eggs are in one basket. This adds risk. If UK house prices were to tumble (which shouldn’t be ruled out as it’s happened before) or rents were to fall, your retirement plans could be jeopardised.

By contrast, with a pension, you can invest your money over many different companies across different sectors and countries. This lowers your overall investment risk substantially.

Lack of liquidity

Another major issue with buy-to-let is that it’s not liquid. If you need access to some money when you retire, you can’t just sell off a bedroom or a bathroom. And selling a property can take months or even years.

With stocks, however, you can literally sell a proportion of your portfolio within minutes and have the cash within days. This is a key advantage that stocks have over property.

Unfavourable tax setup

Next, consider tax on buy-to-let. It’s quite unfavorable. For starters, you’re looking at stamp duty surcharges when you buy a buy-a-let property. Then, you’re looking at tax on your rental income (20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate). 

Finally, if you sell your buy-to-let property for a profit, you could be looking at a substantial Capital Gains Tax bill. Currently, tax is payable on any capital gains over £12,000 (18% or 28% depending on your tax bracket).

By comparison, the tax setup for pensions is attractive. For starters, investments within pensions grow free of Capital Gains Tax and Income Tax. Secondly, you can take 25% of your pension tax-free when you turn 55.

Thirdly, when you put money into a pension, the government actually tops up your contributions. This is known as tax relief. Put £800 into a pension, and the government will top it up to £1,000 (higher rate taxpayers get an even better deal). Overall, from a tax perspective, pensions are superior to property, in my view.

It’s a hassle

Finally, don’t forget the hassle of buy-to-let. If you were to hold on to your buy-to-let property in retirement in an effort to generate an income, you could experience a number of challenges. Do you really want to be dealing with issues such as finding tenants (and dealing with bad ones) and taking care of repairs when you’re 80? It’s not ideal.

This is another area where pensions have a clear advantage. Build up a portfolio of dividend-paying companies within your pension, and you’ll get paid a regular income in retirement for doing absolutely nothing.

All things considered, investing in buy-to-let as an alternative to a pension appears quite risky, in my view. I think you’re better off sticking with a pension and investing in a diversified portfolio of stocks to grow your wealth.

The post Is buy-to-let a good alternative to a pension? appeared first on The Motley Fool UK.

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Views expressed 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.

With that in mind, here’s a simple three-step plan that could help you salvage your retirement if you’re 50 with no pension.

Open your own pension account 

If you have no pension set up at 50, it makes sense to set one up as soon as possible. The reason it’s a good idea to save into a pension for retirement, as opposed to a savings account, is that pensions come with tax relief. This means that your contributions are topped up by the government. Basic-rate taxpayers receive 20% tax relief (higher rate taxpayers can claim back more) meaning that an £800 contribution is topped up to £1,000.

There are two main ways to open a pension. The first way is to open a personal pension account. These are offered by a number of financial services companies such as Aviva and Fidelity. The second way is to open a Self-Invested Personal Pension (SIPP) account. This is a government-approved personal pension scheme that enables you to make your own investment decisions. These are also offered by a range of companies such as Hargreaves Lansdown and AJ Bell.

Get saving

Once your pension is open, start making regular contributions. The more you save into your pension, the more tax relief you’ll receive and the quicker you’ll build up your retirement pot. You can contribute up to £40,000 per year, or 100% of your income if you earn less than £40,000, into a pension account and qualify for tax relief.

Start investing

Finally, the most important step is to invest the money within your pension so that it grows over time.

The best way to do this is to put your money to work in the stock market through either investment funds or individual shares. Over the long run, the stock market tends to generate returns of around 7%-10% per year, meaning that it can boost your wealth significantly over time.

For example, let’s say you saved £500 per month from the age of 50 into a pension, picked up 20% tax relief (taking your annual savings to £7,500) and then generated a return of 8% per year through the stock market on your money. According to my calculations, by 67, your pension would be worth over £250,000. That’s certainly not a bad result from savings of just £500 per month, starting at 50. 

Of course, you could potentially save much more than this if your income permits. Raise your savings to £1,000 per month, and you’re looking at pension savings of over £500k by the age of 67.

Ultimately, the key, if you have no pension at 50, is to act sooner rather than later, and get your money working for you as soon as possible.

The post No pension at 50? This 3-step plan could save your retirement appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Aviva and Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

According to one recent personal finance study, on average, those aged 55 and over in the UK believe that they need an extra £184,484 on top of their current savings and pensions to live a comfortable lifestyle in retirement.

Another study found that the average pension pot of those aged 55-65 in the UK is just over £100,000, which is a long way short of the £300,000+ or so you need to live comfortably in retirement. Clearly, many people are more than a little bit short when it comes to retirement savings.

The good news, however, if your retirement savings are still on the low side, is that it’s actually possible to boost your pension AFTER retirement age. Here, I’ll look at how those aged 65 and older can boost their retirement savings.

Keep working

The first thing to realise is that there’s nothing stopping you from working a little longer after you turn 65 in order to boost your retirement savings. Given that the ‘default retirement age’ no longer exists, no one can force you to retire. Today, many people in the UK (over a million people last year) are working past 65 in an effort to save more for retirement with some even working into their 70s.

Bear in mind that working longer doesn’t necessarily mean staying in your old job. It could be a great time to try something new. Nor does working longer necessarily mean working nine-to-five. You could potentially work part-time, or even on a freelance basis through websites such as PeoplePerHour. Whatever your skill-set, there are plenty of ways to find work at 65 today.

Think outside the box

There are also many ways to generate income today that don’t involve working for someone else. For example:

• If you own your home, you could rent out a room on Airbnb.

• If you own a car parking space and don’t use it, you could rent it out on websites like Stashbee or JustPark.

• If you’re not using your car, you could even rent that out on websites like Getaround.

Ultimately, technology has made it easier to earn some extra income. With a little bit of initiative, you could potentially bring in hundreds of pounds per month through the internet.

Save into a pension

Finally, it’s worth noting that you can pay into a Self-Invested Personal Pension (SIPP) up until age 75.

The benefit of continuing to pay into a pension is that you’ll receive tax relief on your contributions. So, for example, if you’re a basic-rate taxpayer and you make an £800 contribution into your SIPP, the government will top this up to £1,000.

You can contribute up to £40,000 per year, or 100% of your income if you earn less than £40,000, into a SIPP and qualify for tax relief. And even if you are not earning, you can still contribute up to £2,880 each tax year and receive tax relief on your contributions.

If you’re looking to boost your pension after 65, paying into a SIPP could be a smart move.

The post Avoiding State Pension misery: how to boost your pension pot after 65 appeared first on The Motley Fool UK.

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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.

Due to the fact that so many people choose to (or have to) work on a contract or freelance basis these days, there are still thousands of people across the UK who have hit 40 and don’t have a pension.

If you’re in this situation, don’t panic. There’s still plenty of time to build up a sizeable retirement savings pot. Here’s a simple three-step plan that could help you get your retirement savings on track.

Open your own pension

If you don’t already have a pension account set up, it makes sense to take control of the situation and open one.

One easy way to do this is to open a Self-Invested Personal Pension (SIPP) account with a provider such as Hargreaves Lansdown, AJ Bell, or Barclays. This is a government-approved, tax-efficient personal pension account that enables you to make your own investment decisions.

Contribute into it

Once you have a SIPP set up, start putting money into it on a regular basis.

One advantage of the SIPP is that whenever you contribute into it, the government will top up your contribution as a reward for saving for retirement. This is known as tax relief. So, for example, if you’re a basic-rate taxpayer and you contribute £800 into your SIPP, the government will top this up to £1,000 for you.

This is a super deal that could really help you boost your retirement savings. Currently, you can contribute up to £40,000 per year, or 100% of your income if you earn less than £40,000, into a SIPP and qualify for tax relief.

I’ll point out that if you run your own limited company, it may be more tax-efficient to make pre-tax contributions into your SIPP. You won’t receive the tax relief uplift, but the contribution will be treated as a business expense meaning your tax bill will be reduced. If you’re unsure as to the most tax-efficient option, it could be worth speaking to an accountant.

Grow your money

Finally, once you have your own pension set up and you’ve contributed money into your account, the key is to get that money working for you.

At 40, you still have decades to go until retirement. This means that you can afford to take on some risk in the pursuit of higher long-term returns, so stocks are probably the best place for your money. History shows that stocks tend to produce higher long-term returns than other assets such as bonds and cash savings.

With a diversified portfolio of stocks, you can probably expect to generate a return of around 6%-10% per year, on average, over the long run. Combine that kind of return with the tax relief top-ups from the government on your contributions, and you could potentially build up quite a sum of money by the time you hit retirement age.

The post No pension at 40? Here’s a 3-step plan to get your retirement savings on track appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Barclays and Hargreaves Lansdown. 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.

Pension warning

The problem with having the wrong retirement age set for your pension is that there’s a chance that your investment strategy may be switched to a low-risk, low-return profile far too early, which means you could miss out on investment returns in the lead up to retirement.

You see, when you’re young and you have many years until retirement, your pension will generally be set to a growth-oriented investment strategy (assuming you have selected the default option). In other words, the bulk of your pension will be invested in stocks and other growth assets. Over the long term, this kind of strategy is likely to generate the highest returns.

As you get older and move closer to retirement, your pension provider will often adjust your investment strategy to a lower-risk, lower-growth strategy in order to protect your wealth. This is known as ‘automatic de-risking.’ With less time until retirement, you may not have time to recover from a major stock market crash, so it makes sense to allocate your money to lower-risk assets such as fixed-income securities and cash.

Check your retirement age

The issue here though is that if your pension is switched to a lower-risk strategy too early because your retirement age is set incorrectly, you could potentially miss out on thousands of pounds in retirement. For example, pension provider Aviva found that someone whose retirement age is incorrectly set at 60, instead of 67, could miss out on nearly £10,000 in retirement.

“If your retirement age is set wrong, then you move into these lower-risk funds too early – usually 15 years before you’re due to retire,” Lewis warned. His advice? “Go to your scheme and check what your retirement age is, and if it’s wrong, change it. It’s as simple as that.”

Boosting your retirement savings  

Ultimately, Lewis’ warning is very much related to a concept that we regularly discuss here at The Motley Fool – asset allocation. This is the mix of assets within your portfolio.

It’s important to give some serious thought to your asset allocation (it needs to be tailored to your own financial goals, risk tolerance, and investment horizon) because it can have a huge impact on your overall wealth over the long run. For example, invest too much of your wealth in low-risk assets such as cash savings and your money won’t grow very much at all, which could have implications for your retirement. Invest in the right assets, however, and you could see your wealth grow tremendously over the long term. 

If you’re looking to learn more about asset allocation, and how to build up your wealth over the long run, there is plenty of information here at The Motley Fool that could be very helpful.

The post This Martin Lewis money tip could boost your pension by thousands appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Aviva. 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.

Like the Stocks and Shares ISA, those with a SIPP won’t pay any tax on any profits they make or income they receive. Although money can’t be accessed until the age of 55, anything that goes in this account benefits from tax relief. So, someone paying 20% tax on their income would receive a 25% bonus from the government on whatever they deposited (£100 becomes £125, for example). This relief, combined with the magic of compounding over time, can really pay off. 

Another advantage to the SIPP is that you can deposit up to £40,000 within the account in a single tax year — double the allowance permitted in a Stocks and Shares ISA.

Now, £40,000 is clearly a huge amount of cash and most of us won’t be able to contribute anything like that. That said, it could be that you’ve recently received a lump sum from a relative, perhaps through an inheritance. If this is the case, £40,000 would thus grow to £50,000 as a result of tax relief. Put to work in the stock market, this could then become a great retirement fund in time.

Before investing a penny, however, I’d be asking myself two questions.

What’s my attitude to risk?

Knowing your own risk tolerance is key. Those approaching retirement may want to take a more conservative approach compared to those a few decades younger because they have less time to recover from any economic shocks before needing access to their money. For this reason, a heavier weighting in volatile small-cap or high-growth stocks might be appropriate for younger investors but not the former. 

A better bet for those approaching their golden years is to stick with a diversified bunch of dividend-paying blue-chip stocks that have shown an ability to perform regardless of what’s going on in the economy. Within this, I’d include consumer goods firms and pharmaceutical giants.

But your tolerance to risk isn’t the only consideration when planning for retirement. Deciding what to invest in can also depend on how much effort you’re willing to expend tracking your investments.

How much control do I want?

For those disinterested in the stock market, lacking the confidence to pick individual stocks or wanting to further mitigate risk, buying into funds managed by institutional investors is an option (although be aware that most fail to consistently beat their benchmarks after deducting fees).

For me, the passive approach to investing — buying funds that merely track indices like the FTSE 100 and S&P 500 rather than attempting to outperform them — is the best solution for most people, most of the time. My own SIPP is dominated by this type of investment.

And if you’re looking for a way to do the least possible work, Vanguard’s range of low-cost LifeStrategy funds will give you a portfolio in a matter of minutes. These invest your cash in a range of bond and equity exchange-traded funds in different proportions. The LifeStrategy 60% equity fund, for example, invests that percentage in shares and the remainder in bonds — probably ideal for someone in, say, their 40s.

Assuming a not-unreasonable 7% annual return, that £50,000 I mentioned earlier would become £380,000 after 30 years — an excellent base from which to live a long and comfortable retirement.

The post How I’d invest £50k in a SIPP appeared first on The Motley Fool UK.

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Paul Summers has owns shares in Vanguard Life Strategy 80% Equity Fund. 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.

However, many over-55s are not prepared for retirement at all. According to recent research from Close Brothers, nearly half of UK workers (46%) aged 55 or older feel unprepared to retire, with 45% of people in this age group saying that funding their retirement is one of their top three money worries.

Another study by insurer SunLife came up with similar findings. Not only did 40% of people in SunLife’s study aged 55 and over say that their pension savings were lower than they anticipated, but on average, they felt they needed an extra £184,484 on top of their current savings and pensions to have a comfortable lifestyle in retirement.

Clearly, many people aged 55 and over in the UK are very much unprepared for retirement. So, what can they do to boost their pension savings?

Save into a SIPP

One of the easiest ways to boost your retirement savings is to save into a SIPP (self-invested personal pension). The advantage of saving into this type of account, as opposed to saving into a regular savings account, is that the government will reward you for saving for retirement by providing you with ‘tax relief.’

The way this works is that when you make a contribution into a SIPP account, the government will top up your contribution. Basic-rate taxpayers receive tax relief of 20%, meaning that if you contribute £800, the government will add another £200 into your account for you.

This really is a fantastic deal, yet incredibly, around 50% of Britons are completely unaware of it. If you’re in your 50s and unprepared for retirement, saving into a SIPP and taking advantage of the tax relief on offer from the government is one of the smartest moves you can make, in my view, although it’s important to be fully aware of how SIPPs work.

You can open a SIPP within minutes with the likes of Hargreaves Lansdown, AJ Bell, and Interactive Investor.

Use the stock market to grow your wealth

It’s also important to get your money working for you in the lead up to retirement and that means investing in assets that have the potential to generate higher returns than savings accounts over time. The advantage of SIPPs is that they allow you to hold a wide range of stock market-based investments such as shares, investment trusts, and funds, all of which could help you boost your wealth significantly over the long run.

Over the long term, the stock market has been an amazing wealth generator. For example, since the FTSE 100’s inception in 1984, it has risen from 1,000 points to above 7,000 points, which means that, when you add in dividends, it has returned around 9% per year.

Past performance is no guarantee of future performance, of course. But, given the long-term track record of the stock market, if your goal is to boost your retirement savings and you’re willing to invest for a number of years, then it makes sense to have some exposure to stocks, in my view.

With a sensible investment strategy, the stock market could help you close your pension savings gap. 

The post Pension savings: half of over-55s are unprepared for retirement appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Under the current rules, it will increase again between 2026 and 2028 to 67 for both men and women. Another increase is planned for between 2044 and 2046, although with 27 years to go until this new rule comes into force, the government still has plenty of time to change the policy.

If you can’t wait to retire until you are in your mid-to-late 60s, then a private pension can help you do so early. At the time of writing, a saver can start to draw money out of their personal SIPP from age 55, 10 years before the official State Pension age.

Making the most of your private pension

SIPP’s are a great way to save for the future because they have a whole host of tax benefits. For a start, any money deposited into a SIPP attracts tax relief at the depositor’s marginal tax rate. Any money you invest in your SIPP will also be topped up by 20% by the taxman.

Higher or additional-rate taxpayers can claim back a further 20% or 25%, respectively. Contribution limits do apply, and you can only usually claim tax relief up to a total annual contribution of £40,000. Still, the benefit available is much better than nothing.

On top of this, money withdrawn from a SIPP also attracts favourable tax benefits. The first 25% of your withdrawals are tax-free, but any further ones attract tax at your marginal tax rate. Limiting withdrawals to a level below the nil-rate band will help ensure you don’t have to pay any additional tax.

Building the pot

So, how much will you need to put away to be able to achieve a comfortable retirement with a private pension? The answer will depend on what sort of lifestyle you want to live when you retire and at what age you plan to retire. For the purposes of this article, I’m going to assume £500,000 will be enough to achieve a comfortable retirement, excluding any State Pension income.

To hit this target, my numbers show a saver will have to put away roughly £850 a month, or £10,200 a year, over 20 years. That’s assuming the money is invested in a low-cost FTSE 100 tracker fund and there are no savings to begin with.

Thanks to the tax benefits of using a SIPP, the actual monthly contribution required will be much lower than the £850 a month target. I calculate just £680 a month would be enough, with the government adding a further £170 a month in tax relief.

With 30 years of saving, I calculate it would take contributions of just £350 a month, or £280 excluding the tax benefit, to build a pension pot worth £500,000, assuming the money is invested in an FTSE 100 fund returning 8% per annum.

The post How a private pension can help you retire early appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.

Rising saving rates

Before the auto enrolment rule was introduced, around 55% of employees contributed to a workplace pension.

Last year, 87% of eligible workers in the private sector contributed to a workplace pension according to figures from the Department of Work and Pensions. A staggering £90.4bn was saved into workplace schemes during 2018 alone.

Unfortunately, while savers are putting away record amounts of money into these pensions, numbers suggest most workers are not putting away enough to be able to retire comfortably. 

Not saving enough 

Under the current auto enrolment workplace pension rules, from April 2019 the minimum total amount that has to be contributed by you and your employer is 5% and 3% respectively. 

The minimum contribution applies to anything you earn over £6,136 up to a limit of £50,000, what’s known as “qualifying earnings.“

On that basis, for a worker on the UK average wage of £35,423, the contribution would be 8% of £29,287. This works out at £2,342.96 a year, including both the personal and employer contribution.

According to my calculations, a saver starting young and putting away £2,342.96 a year could expect to have a fund of just over £200,000 when they retire — that’s assuming contributions rise with inflation of around 2% every year and an annual interest rate of 5%.

A savings pot of £200,000 at retirement would be enough to buy an annuity yielding around £7,000 a year, far below the £17,000 a year most people think they’ll need to cover the basics in retirement. 

Start your own pension 

I think these figures show that while the workplace pension might be a great tool to help save for retirement, it’s not a complete solution. As a result, I reckon it could a good idea to start your own private pension alongside the government scheme. 

Opening a SIPP alongside the workplace pension is a suitable strategy for many investors, as you don’t breach the total annual pension contribution limit of £40,000. Doing so could lump you with extra tax charges, although savers on the average wage won’t need to worry about this. 

As you have more flexibility with how you can invest your SIPP, you can search for higher returns. For example, investing in a low-cost FTSE 100 tracker fund could yield annual returns of 8% (based on the index’s performance over the past decade) with almost no risk of a total capital impairment. 

According to my calculations, at this rate of return, you would need to save an extra £150 a month or £34.62 a week over 30 years to build a pension pot worth £219,200. When added to the workplace pension, this could give you around £420,000 of savings, enough to provide you with an annual income in retirement of £18,100, assuming a retirement age of 65. 

So, while the workplace pension might not be enough to retire on, it is possible to overcome this problem with just £34.62 a week. It’s never too late to get saving for the future. 

The post Warning: Your workplace pension might not be enough to retire on appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.