Planning for Retirement: Where to Start

Retirement planning can feel overwhelming, but it does not need to be. This guide breaks down the key building blocks: working out what you might need, understanding your income sources, and the options available when you come to access your savings.

How Much Might You Need?

The Pensions and Lifetime Savings Association (PLSA) publishes Retirement Living Standards to give people benchmarks for retirement income:

Standard	Single	Couple
Minimum	£14,400/year	£22,400/year
Moderate	£31,300/year	£43,100/year
Comfortable	£43,100/year	£59,000/year

These are benchmarks, not targets — your needs will depend on your lifestyle, where you live, whether your mortgage is paid off, and your health.

Your Retirement Income Sources

Most people in retirement draw income from a combination of sources:

• State Pension — Up to £11,973/year (2025/26). Available from State Pension age (currently 66).
• Workplace pensions — Defined contribution (DC) pots you have built up with employer contributions. Accessible from age 55 (rising to 57 in 2028).
• Personal pensions and SIPPs — Pensions you have set up and contributed to individually.
• Defined benefit (DB) pensions — "Final salary" or "career average" pensions that pay a guaranteed income. Less common for younger workers but still valuable for those who have them.
• ISA savings and other investments — Tax-free withdrawals from ISAs; taxable income from general investment accounts.
• Property — Rental income, or equity released from your home (equity release is a significant decision with long-term implications).

Accessing Your Pension: The Options

When you reach pension age (currently 55, rising to 57 in 2028), you have several options for defined contribution pensions:

• Tax-free lump sum — You can usually take up to 25% of your pension pot as a tax-free lump sum (known as Pension Commencement Lump Sum or PCLS), subject to the Lump Sum Allowance.
• Drawdown — Keep your pension invested and withdraw income as needed. This offers flexibility but means your pot can go up or down with investment performance.
• Annuity — Buy a guaranteed income for life from an insurance company. This provides certainty but less flexibility. You may get enhanced rates if you have health conditions.
• Combination — Many people use a mix of these options, perhaps buying an annuity to cover essential expenses and keeping the rest in drawdown for flexibility.
• Uncrystallised funds pension lump sum (UFPLS) — Take lump sums directly from your pension, with 25% of each withdrawal tax-free and 75% taxed as income.

The Importance of Starting Early

Compound growth means that money invested earlier has more time to grow. Consider this illustration:

• Starting at age 25 and saving £200/month with 5% annual growth could give you a pot of approximately £315,000 by age 65.
• Starting at age 35 with the same contributions and growth could give you approximately £167,000 by age 65.
• Starting at age 45 could give you approximately £82,000.

These are simplified illustrations and do not account for charges, inflation, or employer contributions, but they demonstrate the power of time in growing your savings.

Workplace Pensions and Auto-Enrolment

Since 2012, employers in the UK must automatically enrol eligible workers into a workplace pension. The minimum contribution is currently 8% of qualifying earnings (with at least 3% from the employer).

Opting out of your workplace pension means losing your employer's contribution — this is effectively giving up part of your pay. Before opting out, it is worth understanding the full picture of what you would be giving up.