According to a recent survey by Axa Life , one in four people have no idea how much their pension will be worth when they retire, even though 53% of people surveyed think they will have enough in their pension pot to be able to pay for leisure activities and holidays. Unfortunately for many people approaching retirement, the reality of retired life is a stark contrast to what they think they will spend their money on. According to the survey, a third of people who are already retired do not have enough money for the things they enjoy and more worryingly of the 40% of pensioners who had already scaled back on luxuries such as holidays, 27% of these pensioners also have to cut back on essentials such as food and heating.
There is clearly a huge difference between how people think they will spend their retirement and what people will actually be able to afford to do with their time once they’re living off their pension. It’s no wonder that this disparity exists though as the maximum state pension is £440.60 per month and the average monthly energy costs is £106 a month and the average food bill is around £140 a month per person. This means that with an average of £246 a month being spent on basic living costs, not including rent or mortgage payments, there will be little, if anything, left for recreation. Although there are benefits which retirees can claim such as the Winter Fuel Payment, increases to energy costs and rising food prices mean pensioners without a sufficient private pension fund will need to stretch every pound.
People without a private pension or without a large enough pension pot to fully support their lifestyle do have options though to help them make the best of retirement.
Paying voluntary National Insurance contributions
How much state pension you receive is calculated by your National Insurance Contributions record from age 16 until State Pension age. If your state pension is going to be low because you’ve paid limited National Insurance, then you can compensate for this with voluntary National Insurance payments which should give your state pension pot a boost.
Part time work
Although not possible for all retirees, part time work is an excellent way to top up pension funds,  to make friends and can make the transition into retirement easier. Tom and Sue Evans, from East Yorkshire, are both retired teachers but still choose to supplement their pensions with part time jobs. Sue says, “Although we do have enough money to live on from our pensions, it can be a stretch at times so it just gives us peace of mind to know that we have a little extra from our paid income.” Sue works part time as a home tutor and Tom works six mornings a week in a local butchers. “It can be tiring,” says Tom, “But it’s worth it just to have a little bit of extra money and I get on really well with the lads in the butchers so I actually quite like going to work”.
Benefits for pensioners
If you’re unable to work or don’t want to work in your retirement then you can gain extra income from benefits specially designed for retirees. Alongside the well documented Winter Fuel Payment, you could also claim for Cold Weather Payments, Christmas Bonuses, Housing Benefit and many more allowances outlined on the NI Direct website.
If you’re approaching retirement age and could do with boosting your pension then now is the time to take action. First of all decide when you would can realistically retire and then workout the kind of income you would like to receive in retirement.
Richard Collis from the specialist IFA firm Campbell Harrison says, “It’s a good idea to work out the amount you would ideally like to live on, for example including yearly holidays and meals out, as well as the amount you would be able to live on without any luxuries. It’s a good idea to assess your current savings and investments and potentially move any sums of money which are in risky investments as if there’s another dip in the market, you could risk losing a big chunk of what you hoped to retire on.”
Richard continues, “If you can afford it, consider maximising your pension contribution as a final push towards retirement, and remember that if you pay a lot of tax, then a pension could be a good way to reduce tax payments on your income. You should also approach purchasing an annuity with great consideration as if you choose to have a lump sum payment, this will of course directly affect the amount of money you will have in your pension pot and the amount you will have to live on each year once you’re retired.”