It is well understood that if you want to have a comfortable retirement, you need to start saving as early as possible – at least by conventional wisdom.
The pension has been the cornerstone of the retirement plan for just about everyone working in the country. And yet, to some, pensions are outdated, unviable and just a generally bad option all around.
Unfortunately, the reality is that many people are not putting enough aside for their pension. In fact, a recent report revealed that as many as one in six people over the age of 55 currently have no savings for their retirement. Of course, there is always the state pension, but that currently works out at a little over £9,000 of income per year – well below the living expenses of many.
So, it is clear that a plan for retirement is needed, but not everyone is interested in saving for a traditional pension. Here we take a closer look at some of the alternative options for saving that could be interesting to those who aren’t sure whether a standard pension is the right choice for them.
If you aren’t goig to be using a conventional pension scheme, one of the popular ways of saving for retirement is through an ISA. The current level that you can invest in an ISA each year is £20,000 – although this does change periodically. This can be a sensible savings route, however, you do still have a number of decisions that you will need to make.
The first is about the type of ISA that you are going to opt for. There are a range of options including fixed rate ISAs which, as you might expect, offer a fixed rate over a specified period but require you to tie up the money over that time. On the other hand, a cash ISA is typically on a lower interest rate but means you can get access to the money whenever you want it.
There are also options such as stocks and shares ISAs which potentially offer higher rates of return, but can also fluctuate with the market meaning you can end up with less than what you put in. And finally lifetime ISAs are paid in over a number of years.
Saving for others
It is worth pointing out that it may be the case that it is not your retirement that you are concerned about, but perhaps the retirement of a child who is not currently saving. Many elderly parents look at their estate and see it as a chance to provide adult children with a comfortable retirement of their own.
If this is the case for you it is advisable to take advice around the best possible planning for your estate and the smart management of inheritance tax. Of course, this is a delicate issue but it is worth looking into and resolving.
“Accepting that you may have to pay some inheritance tax is difficult,” says Oliver Spevack of OS Accounting “however with open conversations and some planning it may be possible to plan your estate to be more efficient for inheritance tax. It may also be a good idea to consider starting to make lifetime gifts to reduce the amount of capital that could be included in your estate.”
In the defence of workplace pensions
It is worth just touching on the issue of workplace pensions. While maligned by some, workplace pensions do actually offer something that no other type of savings does: free money, or at least an approximation of it. Workplace pensions have to be offered by law, and the system works on an opt-out process, so you are automatically enrolled unless you specifically request being removed.
Even if this is only a part of your savings plan, it actually offers a very generous return that you are unlikely to get through any kind of conventional savings plan. If you have given up on the idea of using a workplace pension, it could be worth re-thinking this.
There are many options when it comes to saving for your retirement, and it is often best to select a varied approach. Having multiple different savings options spreads out your risk and provides you with better possibilities for success. Of course, everyone is different so it is definitely advisable that you should speak with a professional financial adviser about your specific situation.