Tony Watts worked as a chef for most of his life, including as head chef at several restaurants, before later taking over as manager of a fish and chip shop. But while he was focused on getting through each month, he never properly planned for retirement.
Tony, now 65, from Yorkshire, joined a workplace pension scheme early in his career, but later opted out when he was struggling with debt and needed as much take-home pay as possible. He then continued opting out of pension schemes throughout much of his working life.
Although his original pension pot continued to grow, by the time he turned 55 it was worth just £8,000 – nowhere near enough to fund a comfortable retirement. As soon as he was able to access it, Tony decided to cash in the whole pot and use the lump sum to clear his debt.
Tony later began saving into a pension again from scratch, but three years ago he was made redundant.
He now works as a cashier at B&M and has joined its workplace pension scheme. He is also due to receive the full state pension when he reaches state pension age in a year or two.
But he fears this still will not be enough to allow him to retire unless he receives an inheritance or releases money from his home.
Tony, who lives on his own, has paid off the mortgage on his three-bedroom house, which was recently valued at £260,000, and is considering downsizing to a smaller property to free up cash.
“Being honest, I can’t see a way I’ll ever be able to retire unless I inherit some money or sell my house. I have no savings whatsoever,” Tony said.
“I had racked up quite a lot of credit card debt that I needed to clear, and everyday living costs, plus staying on top of the debt, took priority over saving for retirement.
“I don’t really mind working, as it keeps me active and social, but it does mean I’ve had to sacrifice other things I wanted to do in my later years, like travelling and spending more time on hobbies, which I obviously regret.
“I’ve just always lived in the here and now, and I chose to keep more money when I was younger rather than saving for later, so this is the consequence of that choice.”
He added: “I am expecting that one day I might inherit a bit of money, so I might be able to use that to achieve my other goals, like travelling, but I know I can’t rely on that.”
Millions still facing pension poverty
Scottish Widows’ latest Retirement Report found that 31 per cent of people are on track for poverty in retirement, although this is an improvement on the 39 per cent recorded last year.
However, it warned that a large proportion of the population is still not saving enough to achieve even a basic standard of living once they stop work.
According to Pensions UK, a single person typically needs an annual income of around £45,000 to enjoy a “comfortable” retirement in the UK, while around £32,700 is needed for a moderate retirement and £13,900 is needed for a minimum standard of living.
The full new state pension currently pays £12,547.60 per year, meaning someone relying solely on this income would fall short even of the minimum retirement living standard.
This leaves many older workers facing difficult choices as they approach retirement age, including continuing to work, relying heavily on the state pension, downsizing their homes, or hoping for an inheritance to help fund later life.
Groups at particular risk of poverty in retirement include self-employed workers who do not save into a personal pension, women who take time off work or reduce their hours to care for children, and people on lower incomes where pension contributions feel unaffordable.
How to boost your pension
It is worth staying enrolled in your workplace pension scheme wherever possible. Your employer must contribute to your pension if you are eligible for automatic enrolment – usually a minimum of three per cent of your qualifying earnings. If you opt out, you lose this free money.
If you can afford to, increasing your pension contributions even by a small amount can make a significant difference over the long term. This is because of compounding, where investment returns grow your pot and boost your returns further, helping your pension grow faster over time.
Andrew Tully, technical services director at Nucleus Financial: “Contributing consistently to your pension throughout your working life is one of the most effective financial decisions you can make thanks to the power of compounding, which means that every pound saved today is worth significantly more in retirement.
“Even modest increases to your contributions can have a dramatic impact over a 30 or 40-year savings journey.”
If you are self-employed, it is worth opening and contributing to a personal pension if you can. You won’t benefit from employer contributions, but you can still receive pensions tax relief, where the government effectively tops up your pension with the money you would have paid in income tax.
Another way to boost your retirement savings is to track down any old workplace pensions you may have lost touch with after changing jobs.
There is an estimated £31.1bn sitting in lost pension pots in the UK, according to the latest research from the Pensions Policy Institute, so it is worth checking whether any of this money belongs to you.
You can use the Government’s Pension Tracing Service to find contact details for old workplace or personal pension schemes. It will not tell you whether you have a pension or how much it is worth, but it can help you contact the provider.
It may also be worth considering whether to consolidate older pensions into one pot, particularly if they have high charges. This can make your savings easier to monitor and help you see whether you are on track for retirement.
However, you should check carefully before transferring a pension, as some older schemes may have valuable benefits, guarantees or exit fees that could be lost if you move the money elsewhere.
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