Pensions

A simple three-step guide: estimate, calculate and plan

Deciding how and when to retire is one of the most significant life decisions. Longer life expectancy, volatile investment markets, ever-changing regulations, and the various options for withdrawing your pension can make retirement seem understandably daunting.
On top of this, the concept of ‘retiring’ is open to interpretation: for some, retirement plans involve spending time with family, holidays abroad and home renovations. Others might consider working part-time and pursuing phased retirement, or prioritising a lifelong hobby or passion.

Our simple three-step guide: ‘estimate, calculate and plan’ will help you prepare for your retirement, whatever your plans may be.

ESTIMATE

Estimate your annual cost of living. Future expenses can be hard to predict; you can reach a ballpark figure by doing the following:

1. Review your current regular outgoings (household expenses, travel and leisure, mortgage/rent payments)
2. Subtract any expenses you no longer expect to have in retirement
3. Consider any anticipated/planned expenses (travel plans or replacing a car, for example) or future costs that may come up

Various online calculators can help you estimate your total annual living costs. The budget planner from the government’s MoneyHelper website is one such example.
An alternative way to estimate your cost of living in retirement is to use ‘The Retirement Living Standards’ by the Pensions and Lifetime Savings Association. This guide forecasts what retirement life may look like based on three annual income categories:

Source: Home – PLSA – Retirement Living Standards

CALCULATE

Calculate your retirement pot – it is important to consider all sources of income when approaching retirement. You will need to factor the following into your expected pension pot:

1. State Pension – most people will be entitled to a government-provided State Pension from age 66 (rising to 67 between 2026 and 2028). To check how much State Pension you can get and when you should expect to receive it, you can visit Check your State Pension forecast – GOV.UK (www.gov.uk) and follow the online instructions.
2. Workplace Pension – check how much you have accumulated in your workplace pension through your employer.
3. Other Pensions – check how much you have accumulated in private pensions or pensions established under different employers. If you need to find contact details for a lost pension (workplace or personal), you can visit Find pension contact details – GOV.UK (www.gov.uk) and follow the online instructions.
4. Other investments – you should also consider other forms of income down the line, for example, individual saving accounts (ISAs), investments (including property rental income) and any potential inheritance.

PLAN

Plan to reach your retirement goals – this is a two-step process. Step 1 – Once you have totalled up your savings and various sources of income, it’s time to estimate your expected income.

1. Pension income – there are various pension calculators available online that can estimate the income you’ll get when you retire. You can use MoneyHelper’s pension calculator by visiting Use our pension calculator | MoneyHelper and following the online instructions.
2. Investment income – various investment calculators are available online to help you calculate what your investments will be worth in the future. It’s best to use the investment calculator of the provider with whom you have invested.

This will then help you project the value of your pension and investments when you reach retirement age.
Step 2 is to determine whether these projections match your estimated annual cost of living.

Don’t worry if your initial projections don’t match your estimated annual cost of living in retirement. There are various options available to you. Working with a financial advisor or retirement planner can help you develop a plan that aligns with your retirement goals. To find an advisor near you, please visit Match with your professional adviser | Unbiased.co.uk.

It’s now becoming a cliché to write that people aren’t engaged with their pensions, or that members don’t feel connected to their pensions. However, as with all cliches, there is an element of truth – Aon’s DC pension and financial wellbeing employee research 2021 shows that 71% of the people surveyed have not set a goal for how much they need to save before they can retire, and 87% are expecting a shortfall in retirement income.

So why are people not engaged with their pensions – the key source of income that will provide for them once they have finished their working lives? Here are some of the typical responses from members:

How has the industry responded to improving member engagement?

Pension providers have responded by developing and/or revamping ‘tools’ including pension apps, modelling-tools, ‘micro-sites’, personalised videos and video annual benefit statements, to name just a few. Pension providers in the UK have also responded by offering more pension investment choices (outside of the default option) or lower charges to make their proposition more competitive.

A Pension Paradox

The pension industry’s response seems to have created a pension paradox. We understand member engagement with pensions is low – we know possible reasons for low member engagement – pension providers have developed solutions/tools in response – but member engagement is still just as low!

Missing piece to the puzzle to drive engagement with pensions – Target

We believe the pension paradox exists because there is a missing piece to this jigsaw – a Target. The reason why members don’t engage with their pension is because, while members are given access to a host of ‘pension tools’ from their pension provider, none of them explicitly help members to set a target for their retirement, especially in a way which resonates with them.

According to a survey by the Pensions and Lifetime Savings Association (PLSA), 70% of savers say that targets would help them save more. By target, we mean a target retirement income level. Take the PLSA’s Retirement Living Standards: pitched at three levels, this can guide members to target precisely what their retirement could look like (and retirement costs). Help members set a target, via financial wellbeing workshops and sessions, and make the pension target really personal, and member engagement could suddenly look very different. This can also help members see if they are on track to live the retirement they envisage, and if not, what they can do ‘now’ to bring them back on track.

Although the responsibility lies with the employee, there’s still a big role employers can play to help employees achieve a retirement worth having – and as pension specialists we’re here to help.

Do you need help with your pension engagement from pension specialists?

To find out more about how the team of pension specialists at Growth Partners can help you with your pension member engagement, please feel free to get in touch with us today.

You can’t hit a target you cannot see, and you cannot see a target you do not have – Zig Ziglar.