Financial Well-being is the theme for Talk Money Talk Pensions this year.
But what does that mean? What is financial well-being?
When it comes to talking about your pension, you are talking about your future financial
Here are four things you need to consider:
1. What do you already have in place?
Are you eligible for a state pension and if so, how much will that be? You can check that out by going onto the Government website https://www.pensionwise.gov.uk/en
You will easily be able to see if and when you are eligible and what the current pension would be.
The next thing to look at is have you got any other forms of pension due to you? Recently, the Government legislated that everyone was to have a work place pension. By now most of us will be enrolled in our work place pension scheme or have opted out. The pension is to be used as a top up to your state pension when you retire. It is important to understand what pensions you are eligible for before you get to retirement age.
2. Guarantees and Index Linking
When you are looking at what pension you may possibly get you need to consider two things. Firstly, what is your retirement age. Nowadays, anyone can access their pension from aged 55 if they have one. However, the official retirement age has gone from 60 years of age for women and 65 for men, to 67 in the last few years, meaning that you have to work longer before you can claim your state pension. The state pension age is set to rise further so if you are not close to retiring now, you may find that you have to work up to 70 or even beyond, depending on what Governments decide.
Because the state pension is index linked it rises with inflation. In reality this means that the value of your pension should be more or less the same, whenever you take it. If, for example the pension is £8500 per year today, then in 20 years, although it may be more actual money, it will be worth about the same, unless of course there is an increase in real terms. So how does this affect you? It means that whatever you can buy today with your pension, you should also be able to buy in the future.
If you have other pensions, it’s worth checking whether they are index linked as this keeps the value of your money the same.
3. Work out what you will need for your retirement
This is the million dollar question. Most of us don’t know exactly how much we will need for retirement as we are unaware of unknown factors like health issues or when we are going to die. Due to this we can only make a good guess, perhaps erring on the optimistic side. Are you planning on working beyond your retirement age? Or perhaps planning to retire early? Will you take a part-time or seasonal job? Is that what you want? These are all issues to think about when you are planning for your future.
4. Have you made a Financial Plan?
If your retirement is some time away, you have time to plan for your future. Do you own a house? Can you pay off the mortgage on the property before you retire? Is that part of your plan? Or where will you live? What can you manage on financially and where will this come from? Do you want to just manage, or do you want more? Are you a driver? Do you want to change your car in the future? Do you like to take holidays?
These factors all need some thought and discussion with those around you. Once you have decided what it is that you will need, you can speak to others involved like your family, so that everyone understands what you are aiming for. Remember that the value of money will go down and be worth less to you unless it is index linked. You may want to ask a professional for help in working out what you will need for the future. The Government offer a free pensions advice service to help anyone over 50 to plan for their future. https://www.pensionwise.gov.uk/en
By opening up a conversation around the four key areas above you will be starting on your financial well-being journey.