Saving for retirement in your 40s

You’ve probably been saving for a while now and are likely to have a number of employer pension pots that are likely to have accumulated over the years. This can be a good time to take stock of what you have, and make the most of the opportunity still open to you.

If you haven’t really given a thought to retirement yet, there’s still time to make a big difference to your pension.

Saving for retirement in your 40s

Source: Office for National Statistics

This snapshot shows the life expectancy for a 40 year old. With a state pension age of 67, you should expect to live 20 years in retirement, with a fair chance of that being 30 years, or even longer.

Planning your retirement

The first step is to figure out what you might need in retirement, and what your current pensions might provide.

What you can do now

Maximise your employer contributions

If your employer offers a workplace pension, then you should consider contributing whatever is required to get the maximum employer contribution.

Set up a regular savings plan

If you are self-employed or simply want to pay more, then you can pay in and get tax relief on anything up to your annual limit of £40,000 or to 100% of your earnings if that’s lower.

If you have disposable income then it can make sense to increase your regular contributions to take advantage of the government’s tax relief.

Make a one-off payment

If you’re not on track to save your annual limit of £40,000* (or 100% of your earnings if lower) then you can make a payment whenever you like and take advantage of the tax-relief.

Regularly review your payments

As your circumstances change, you can easily increase, stop or restart your contributions any time to suit you.

Keep pace with your salary increases

Any time you get a pay rise, think about increasing your pension contributions by the same percentage.

Use your carry forward allowance

The carry forward allowance allows you to make use of any annual allowance you may not have used during the previous three tax years.

To use carry forward, you must make the maximum tax relievable contribution in the current tax year (typically £40,000* in 2017/18) and can then use unused annual allowances from the three previous tax years (provided you were a member of a pension scheme), starting with the tax year three years ago.

You can’t receive tax relief on contributions in excess of your earnings in a tax year and you only receive higher rate tax relief to the extent that you have paid it. Please read our Carry Forward guide (pdf) for more information.

Bring your pensions together

As you’re likely to have already a number of jobs you could easily end up with a dozen or more pensions by the time you retire. Tracking multiple pensions through multiple providers is tricky and time consuming, so why not develop the habit of bringing them together as you go.

If you have savings in several pensions – which is likely if you’ve changed jobs during your career – then bringing them together means you have just one company to deal with for every aspect of your income. Just be sure that if you transfer your pensions to one company, you have access to all the income options.

Learn how investing can boost your chances

You can either create your own portfolio or invest in one that is ready made to increase your chances of the retirement you want, remembering of course that the value of investments can go down as well as up, so you may get back less than you invest.

The tax benefits of a pension

  • Savings that you put into your pension are not taxed
  • In a personal pension such as the Fidelity SIPP, we can claim 20% tax relief on from the Government and add it to the money you save
  • You can save up to £40,000* a year in your pension and receive tax relief so long as it’s not more than you earned
  • You can claim money off your tax bill if you pay higher-rate or additional-rate tax
  • From the age of 55 you can take a tax-free lump sum worth up to 25% of your pension.

How much can you boost your retirement savings?

How much can you save in tax?

If you are considering paying a large contribution and have income of £150,000 or more (including pension contributions from an employer), you need to be aware of the tapered annual allowance - please read our guide for more information (pdf).

What next?

If you want to open a new pension or transfer an existing pension to Fidelity, then take a look at our Self-Invested Personal Pension (SIPP). It’s low cost and easy to manage online.

*Tax relief is only available up to 100% of your earnings or £3,600 (gross) if that’s higher. If you contribute more than £40,000 (the annual allowance) in the 2017/18 tax year you may have to pay a tax charge for exceeding this amount, unless you have unused allowance from the any of three previous tax years. If you have earnings above £110,000 the amount you can contribute and get tax relief on may be lower (down to £10,000) and if you have flexibly withdrawn money from your pension savings this could be just £4,000.

For more information please review the following factsheets: Annual Allowance, Carry Forward, Tapered Annual Allowance, Money Purchase Annual Allowance.

** Exit fees terms and conditions

Remember that the value of investments can fall as well as rise, so you may get back less than you invest. It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the charges, features, and services offered.

To find out what else you should consider before transferring, please read our Fidelity SIPP transfer factsheet. If you are in any doubt whether or not a pension transfer is suitable for your circumstances we strongly suggest that you seek advice from an authorised financial adviser.

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This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

The value of investments can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular product, service or course of action. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please contact Fidelity’s Retirement Service on 0800 084 5045 or refer to your financial adviser. Eligibility to invest into a SIPP depends on personal circumstances and all tax rules may change in future. Pension money cannot usually be withdrawn until age 55.