The pension crisis in the UK keeps growing - in fact, a whopping 10 million of us aren’t saving enough. Pensions haven’t been increasing in line with our earnings and final-salary schemes are fast becoming a thing of the past.
With this in mind, what alternatives could provide more generously for you during your retirement?
1. Individual savings account (ISA)
ISAs are flexible tax-free schemes that don’t lock your savings away. You can withdraw your money in one or a number of lump sums. And you don’t pay income or capital gains tax on your interest.
You can take out a cash ISA with your bank or building society, or create an investment account to be invested in stocks and shares. And you can choose from mini and maxi ISAs, i.e. split your money between providers or have the maximum permitted amount with one.
But there’s a limit to the amount you can salt away into an ISA. Plus some accounts may have tiered rates of interest or a notice period for withdrawals. You should check these facts with your provider to make sure their ISA is right for you.
Although the current economic climate has made some think twice about investing in property, you can still think of your mortgage repayments as a personal pension plan. This means you should plan to pay off your mortgage before you retire. If you have a large family home you could then sell and move to a smaller property, using the difference as your income.
3. Renting or letting
Alternatively you could move to a smaller house or flat when you retire, and rent out your own place for a monthly income. Or you could buy another property at any time purely to let – if you’re sure the rent you’ll collect will cover the new mortgage. If you live in a university town you should be able to rely on the student market – just don’t invest in fancy furniture!
In your calculations you should include your responsibility for all repairs and maintenance, as well as finding tenants and collecting their rent, unless you pay a management company to take care of it.
4. Stocks and shares
Again, recent upheavals have made us more wary of the stock market – which could be a good thing! But if you’ve already got some form of pension and still have some disposable cash, low-risk investments could be a way to top up your retirement income.
If you can’t afford to lose any of your money, don’t invest it. When you buy shares you’re buying a part of a company, so your profits will only grow if their business does. Dividends are usually paid out twice a year by larger companies but there are no guarantees. To make any investment worthwhile you’ll need £1,000 or more, but a good stockbroker can mean a good return on your money.
5. Other alternatives
If you’re the type of person who loves antiques or art you could consider these additional investments. However, it’s a much more risky option – markets can be fickle and there’s no guarantee you’ll even make back your money down the line. But if you know you’ll get enjoyment from your collection today, it doesn’t hurt to keep an eye on its market value over time.