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 the annual limit of £40,000* or 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 the 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 unused annual allowance from the three previous tax years. This means you may be able to contribute more than your annual allowance to your pension pot this tax year (until 5th April 2019) and still benefit from tax relief.

To use carry forward, you must make the maximum tax relievable contribution in the current tax year (typically £40,000* in 2018/19) and then you can 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 had 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 check what charges apply and that you have access to all the income options you need.

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 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 normally 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?

Note: your total contribution amount is not the amount you pay in, though in some cases it will be, but rather this is the amount that will be in the pension after the contribution has been made and tax basic rate tax relief has been added.

Tapered annual allowance and how it works

Thinking of paying a large contribution?

If you have income of £110,000 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.

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 on the lower of the annual allowance (currently £40,000) or 100% of your earnings in a given tax year. If you exceed your annual allowance you may have a tax charge to pay unless you have unused allowance you can carry forward. If you have earnings of £110,000 or more, the amount you can pay in and receive tax relief on could be 'tapered' down to £10,000. Alternatively, if you’ve already taken taxable income from your pension pot under pension freedoms, your annual allowance may be £4,000 (known as the money purchase annual allowance) and you will not be able to use carry forward to contribute to a SIPP.

For more information on tax relief and all the allowances please visit our pension allowances page.

** Exit fees terms and conditions

Make life easier by bringing your pensions together

Combining your pensions into a Self-Invested Personal Pension (SIPP) can make it easier to manage your savings - and it could be cheaper, with lower fees than you’re currently paying.

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.

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.

Fidelity SIPP transfer factsheet

Thinking of transferring?

To find out what you should consider first, please read our Fidelity SIPP transfer guide.

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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 368 6882, Monday to Friday, 9am - 5pm, 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 normally be withdrawn until age 55.