Retirement planning for your 50s and 60s

What you’ll learn:

• Why it’s important to check where your pension savings are invested.
• How consolidating some old pensions could be helpful but needs care as it can be risky.
• Why you may want to re-evaluate your approach to risk in later life.

If you’re still working in your 50s or 60s, now’s the perfect time to make sure your retirement savings are on track to provide you with the sort of lifestyle you want when you stop work.

In the first of our two articles on retirement planning for every decade of your life, we looked at what steps you should be taking during your 30s and in your 40s. Here, in part two, we highlight some of the things you may want to consider during the next two decades of your life.

Remember that tax and pensions rules can and do change over time, and their effect on you will depend on your individual circumstances, which can also change.

Your 50s

By the time you reach your 50s, you may have a better idea of when you’re likely to retire and how much you’ll need to cover your essential living costs, and to pay for any luxuries in retirement, such as holidays or hobbies. Lots of us might be approaching our maximum earning potential, if we haven’t reached it already.

Your outgoings might differ as your family’s needs change, making this the ideal opportunity to review how much you can save into your pension.

Your action checklist:

• If you can, you may want to consider making additional lump sum contributions into your pension. Bear in mind that there’s an annual pension savings limit which, for most people, for the 2023-24 tax year is £60,000, or the value of your taxable earnings, whichever is lower. If you earn more than £200,000 and your earnings, plus all contributions made into your pensions, total more than £260,000, this saving limit will be gradually reduced, potentially to as little as £4,000 if you’re earning £260,000 or more.

• If you haven’t used your full annual allowance in years preceding the current tax year, you may, depending on your circumstances, be able to carry forward any unused annual allowance that you have available from the last three years. You do, however, need to have been a member of a pension scheme over that period. 

As of 6th April 2024 there will no longer be a maximum amount of pension savings that you can build up over your lifetime. The limit, known as the Lifetime Allowance (LTA), is currently £1,073,100. Any excess was previously taxed at a maximum of 55% but as of April 2024 this will no longer be the case. Until then, whilst the LTA remains in place, the LTA tax charge will be removed, meaning no one will pay an LTA tax charge from 6 April 2023.

The changes mean that you can save into your pensions without the concern of a lifetime allowance tax charge should you breach the limit.

• If you’ve worked for lots of different companies over the years, you might have paid into several pensions. If you can’t remember if you have entitlement from former employers, you can use the Government’s free Pension Tracing Service to find any old pensions you might have lost track of.
  

• If you’re finding it difficult to keep track of all your pensions, it might be worth consolidating them into one through a personal pension. But before you do this, you’ll need to check you won’t lose out on any benefits or have to pay steep charges or penalties.

Bear in mind that if you’re considering transferring from a final salary pension, the benefits at risk could include things like a retirement income related to final salary during employment, which is likely to be better than the income generated by a defined contribution scheme. At Barclays we don’t accept transfers from final salary schemes.

Your 60s

By the time you reach into your 60s, you might be thinking about ensuring your savings are more conservatively invested, to protect you from any sudden market falls just before you retire.

Your action checklist:

• Find out whether your pension plan provider aims to reduce risks in your pension investments as you approach retirement. Many company schemes automatically move your funds into lower risk investments as you near retirement, through a process known as ‘lifestyling’. This essentially means your pension portfolio will gradually reduce your exposure to typically more volatile assets such as shares and into a higher mix of bonds and cash.

• Even if you’re managing your own pension, say via a self-invested personal pension (a SIPP), you can employ your own ‘lifestyling’. Everyone’s needs and circumstances will be different though, so if you’re not sure how to go about this, seek professional financial advice.

• Start thinking about when you might plan to use your retirement savings. You’re currently able to take your pension from as early as the age of 55. This minimum pension age is set at 10 years below the age at which you can start claiming your State Pension, which means it will increase in the future.

You’ll also need to think about how your pension will provide you with an income. There are several different options to choose from, so it’s important to consider them all carefully and seek professional advice if you’re not sure which is right for you.

Three of the main options are:

• Take some of your pension as a tax-free lump sum. Provided the value of your retirement savings is under the lifetime allowance, you can take up to 25% from your pension pot tax-free and can use the remainder to provide an income. However, this is just one option. You may decide, for example, to use your tax-free entitlement gradually instead, or to leave your money invested.

• If you want your pension fund to remain invested while you draw an income from the fund, income drawdown could be the right choice for you. This allows you to remain in control of your pension investments, albeit there’s always a risk they could fall in value. You’ll need to think very carefully about how much income you’ll need to draw, because if you take out too much and/or if markets take a tumble you risk running out of money too soon – and it’s very likely you’ll need that money to see you though the next few decades.

• If you’d prefer a guaranteed income, then you might want to look into an annuity. When you buy an annuity, you're essentially entering into a contract with an insurer whereby in exchange for your pension pot, it will provide you with a guaranteed income for the rest of your life, or for a defined period, depending on which type you buy. If you do plan to swap your nest-egg for an annuity, it’s important that you shop around for the best deal, as you don’t have to take the annuity your pension provider offers you. And you may get enhanced terms depending on your health and occupation.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.