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The answer to this question will be different for everyone, so here are some things to think about:
If you are under the age of 40, the chances are that thinking seriously about retirement may not be top of your mind. The Covid-19 pandemic, sending the kids to school, the lack of holidays and not being able to eat out are more likely to be a concern. The fact is that you have time on your side, so now is the time to DO SOMETHING and start saving.
Consider this:
If you’re 25 and you save £100 a month for 40 years, with an investment return of 4% a year, you will have £117,023 at the age of 65.
If you’re 45 and you save £200 a month for 20 years, with the same modest return of 4% a year, you will have £73,023 at the age of 65.
The investment amount is the same, it is compound interest (the interest on your interest) that makes the difference, because you have longer to invest.
The key message here is: Make a start, no matter how small – it will add up over time.
Often people think, ‘I don’t have to save for retirement because the States pension will pay an income for me.’ You might be surprised to hear that the States of Jersey pension is currently £225.96 a week for a single person, which adds up to £11,749.92 a year. This will increase over time as it is indexed by the inflation rate. You must have contributed at least 46 years to receive the full amount (and this will increase to 47 years in 2031); otherwise the amount is reduced proportionately to the amount of your social security contributions.
Also, were you aware that the State pension age is gradually rising to 67? That may make a difference to when you will be able to retire more comfortably, as this pension can top up any personal or work pensions you already have. To check the age that you will receive your State pension, go to www.gov.je.
If you are over the age of 40, then retirement saving may well be on your radar and if you are over 60 then you are probably seriously contemplating what retirement will look like for you.
Check what you have
Most people have worked in more than one job over the years and you may have a store of various pension pots waiting to be claimed as you moved from one place of work to another. Contact your ex-employers to see who administers these pensions or talk to one of our advisers to help you track down any hidden pots of gold. Those annual statements that are stuffed into a file somewhere may be very handy now. If you have moved address since you last worked at a company, make sure that you inform the scheme administrators so that they can send you up-to-date information – that is a responsibility many people forget.
Think about the lifestyle you would like in retirement
The days of working full time and stopping at retirement are now quite rare. People are generally still healthy in their sixties and many enjoy the social and mental aspects of working. Part-time working is becoming more common and now that ‘working from home’ is practically the norm, employers are being more flexible on hours.
A ‘phased’ retirement is much more common nowadays.
As a rule of thumb, you should plan for an income of 50-60% of the amount you are earning before retirement once you actually retire. This can vary greatly depending on what you want to do. For many it can be the opportunity to travel or turn to a hobby full time. Some become carers for grandchildren or turn to volunteer and charity work. It is worth calculating a budget of what you think you will need. Don’t forget to factor in the impact of inflation; what you have today may not buy you the same in the future.
Often people focus on the early active years of retirement and forget that they may slow down over time. Some seniors will need the Long-Term Care Scheme in retirement, if their health becomes more fragile. Information on the scheme is available on www.gov.je and it is best to apply early, if you think you’ll need it.
Once you have thought about what you might need in retirement and how long until you get there, you need to consider how much to save and to make your money grow.
Work pensions
If you are working and your employer offers a pension, then make sure you join as soon as you can. If they are willing to increase their contribution based on the amount you contribute, then try to put in the maximum you can.
Employer contributions are effectively ‘free money’ for you and should be gratefully accepted.
Your employer will explain the scheme rules to you and the investment choices available. If you’re not sure, then speak to a financial adviser.
Personal pensions
If you don’t have access to an employer scheme, then you need to set up a personal pension, which in Jersey will usually be a Retirement Trust Scheme. Our advisers can help you with this.
Tax relief
If you earn less than £200,000 a year, you will get tax relief on amounts up to £50,000, or your salary, depending on which amount is lower.
If your income tax would normally be £10,000 and you put £10,000 into your pension, then your tax bill will be £8,000.
Investment decisions
How you invest your retirement funds will be important in helping you have the lifestyle you want in retirement. You may be new to investing and naturally want to avoid taking any risks with your money. The longer you have to invest, the more time your money has to recover from any downturn in the market, so don’t be afraid to take some risk.
Make sure you understand what you are buying and avoid anything offering outrageous returns; the current interest rate on bank deposit accounts is less than 1%, so anything offering returns above 8% a year must have considerable risk.
Our advisers will always recommend you hold some cash for emergencies but keeping your pension in cash will not give you any growth on your money at all. Worse still, the impact of inflation over the long term will mean that your cash will buy less when you retire.
Understand how much risk you are willing to take; you don’t want to be up all night worrying that your money might be lost and you don’t want to sleepwalk into a retirement with no income. You need to take a sensible amount of risk to achieve a reasonable return.
Will I have enough?
Remember that on average you are likely to live for 18 to 21 years after you retire and many people live well into their nineties now, so your money has to work hard to provide you with a decent income. Review your retirement plans once a year with your adviser to see if you are on track, be prepared to take action and stay focused on the lifestyle you want to live in retirement.
For more information and financial advice on your retirement plans, contact Alexander Forbes Offshore at info@aforbes.co.je or call 01534 837837.
+44 1534 837837
PO Box 336, 2 - 6 Church Street, St Helier, JE4 8UU
www.alexanderforbesoffshore.com
Alexander Forbes Offshore is the registered trading name of Alexander Forbes Channel Islands Limited. Company number: 9596. Regulated by the Jersey Financial Services Commission.
Alexander Forbes Channel Islands Limited (AFCI), trading as Alexander Forbes Offshore (AFO), is based in Jersey and is 100% owned by Alexander Forbes Group South Africa. We have been the Jersey presence for Channel Island employers and employees since 1975 and are regulated by the Jersey Financial Services Commission.
We help our clients create, grow and protect their financial well-being throughout their careers and into retirement. We do this through an extensive range of pension, investment and employee benefit solutions.
Our core business is administering local and international corporate pension funds, savings and investments, as well as providing risk (insurance) services. We also operate our own Jersey-approved personal and group pension funds, including the Alexander Forbes International Personal Pension Plan.
