Pensions  

What should clients be saving at different points in retirement?

This article is part of
Guide to boosting retirement income

What should clients be saving at different points in retirement?

It is commonly acknowledged that people need to start saving sooner than later to fund their retirement life. 

But the amount that clients need to save can vary depending on how close the individual is to retirement. 

So what should clients be saving at different points to the path to retirement? 

Several in the industry stress that the first point in the retirement journey should be for individuals to maximise their occupational pensions. 

Employer pensions 

Sir Steve Webb, director of policy at Royal London, said: “Clients need to have a mix of short-term and long-term savings strategies, though the balance of these will shift over time.  Most people need a cash buffer to tide them over short-term spending pressures and to avoid having to resort to high-cost credit." 

Sir Steve stresses that individuals should maximise the amount of employer pension contributions that they can access.

He adds: “For example, if an employer will offer matching contributions up to 7 per cent then a worker who is paying at the automatic enrolment minimum of 5 per cent might want to prioritise the extra 2 per cent.”

Udit Garg, head of wealth management at Sun Global Investments, says: “It is important that people have more guidance and understanding in the ways they can boost their retirement including state benefits, diversifying and maximising employer’s contributions.”

Fiona Tait, technical director at Intelligent Pensions confirms this view. 

She explains: “Those in their twenties and thirties should take advantage of any workplace pension scheme, where contributions are deducted from salary before it is received and spent and where the funds are managed for them by investment professionals.”

The forties and fifties 

Ms Tait highlights how pensions need to be reviewed as individuals dive deeper into the accumulation phase, typically as individuals hit their forties. 

“For people in their fifties and sixties the approach should remain the same however, the focus sharpens as they start to form a more coherent picture of when and how they want to stop work.”

Ms Tait points out how cashflow plans are often used at this stage to provide a more specific level of saving, taking into account other assets and income sources. 

She adds:  “It is also at this stage that tax restrictions are more likely to come into play and advisers may offer annual and lifetime allowance planning and recommend alternative savings vehicles to complement pension savings.”

Retirement Pathways 

Some in the industry mentioned the concept of retirement pathways, and advisers need to highlight the value of tailored retirement plans, which can avoid individuals having to self-manage their pension pots. 

Mr Garg says: “Following on from the FCA’s Retirement Outcomes Review earlier this year, it was made clear that many people are unsure about their investment pathways as there are many more complicated options and decisions [that can now be made].”