Inflation in the UK was at a 41 year high in October at 11.1 percent and is expected to remain high for some time, intensifying the existing cost-of-living crisis.

It is a difficult time for many people, but what about those planning to retire?

WEALTH at work, a leading financial wellbeing and retirement specialist, outlines below what employees will need to consider if they are planning to retire during these turbulent times.

  1. Work out a financial plan for retirement 

Expenses are likely to change in retirement, so employees should work out what they think they will need to meet day-to-day living expenses (such as household bills) and discretionary expenditure (such as holidays and hobbies).  Your current outgoings are a good place to start when working this out, but, employees should make sure they take rising prices on food and energy etc. into account.

It’s then a good idea for employees to work out the value of all of their savings and investments including pensions. They should bear in mind the impact of inflation on these. For example, those with a defined benefit scheme are likely to have some inflation protection, although often this is limited to between 2.5 percent and 5 percent.  Also, as announced in the Autumn Statement, the pensions ‘triple lock’ has been re-instated, meaning that the State Pension will now rise in April 2023 by 10.1 percent.

  1. Can they afford to retire? 

Do employees have enough put aside to be able to afford to retire or do they need to work a little longer, or perhaps work part-time? Many people may be questioning this right now, especially if their pension has fallen in value due to market volatility.

According to the Pensions and Lifetime Savings Association (PLSA), a single person will need about £11,000 a year to achieve the minimum standard of living (this would cover all a retiree’s needs plus enough for some leisure activities such as a week’s holiday in the UK and eating out occasionally); £21,000 a year for a moderate standard of living (a two-week holiday in Europe and more frequent eating out); and £34,000 a year for a comfortable standard of living (this would cover all a retiree’s needs plus two foreign holidays a year and some luxuries such as regular beauty treatments). For couples, it’s £17,000, £31,000 and £50,000, respectively.

When doing their sums, employees should consider how long they think they will live as research has found that most people live longer than they expect. The Office for National Statistics (ONS) estimates that the average life expectancy in the UK for people aged 65 will be 85 years for men and 87 years for women.

Also, they will need to keep in mind that when someone retires, they are likely to be paying less income tax, no National Insurance (NI), mortgages and loans may be paid off, they will have no more pension contributions, and any children are likely to be financially independent.  With these reductions in costs, the income needed in retirement is likely to be significantly less than what is required during your working life.

  1. Pensions are not the only source of income in retirement

The higher cost of living, as well as stock market volatility, means now may not be the best time to start taking money out of a pension. There are many assets such as cash ISAs and general cash savings, which can be used as sources of income instead of a pension.

  1. Do they need to consider delaying retirement or working part-time?

If employees are worried about the value of their pension falling due to market volatility, they may want to delay retirement to give their pension time to recover. They could also consider making further pension contributions to boost their pot and take advantage of the tax relief. However, if someone has already made withdrawals from their pension other than the tax-free lump sum, something called the ‘Money Purchase Annual Allowance’ kicks in, which limits the amount that can be paid into a pension to £4,000 a year.

  1. Tax considerations

Unfortunately, in recent years many people have found themselves paying more tax on their pensions than they need to. For example, some people have taken their pension as a cash lump sum, not realising that it made them a higher rate taxpayer!

Employees may not realise that they could be better off taking a smaller amount each year from their pension, keeping within their tax bracket, and then topping it up with withdrawals from their ISA, as this is paid tax-free.

  1. Shopping around

Employees should make sure that they shop around before they purchase any retirement products. Which? found that the difference in growth between the cheapest and most expensive drawdown plans for a £260,000 pot (the average pot value) was nearly £18,000 over a 20-year period. It is important they not only check charging structures, but make sure it suits their needs, and that they can withdraw cash as and when they want it, and for as long as it’s needed.

  1. Regulated financial advice can support employees through retirement

Increasing numbers are accessing their pension through income drawdown. There are many benefits to this, but it can be a daunting prospect to manage your own finances in retirement, especially during turbulent times. Also, the Pensions Policy Institute (PPI) research has found that cognitive decline during retirement may make it more difficult for some people to make appropriate decisions about how to access their savings in their older years.

It’s important that employees understand that regulated financial advice can be a solution to this and may actually cost the same, if not less than buying retirement products, such as annuities, through online brokers. It can also be seen as an investment as an Adviser will look at all of your assets, work out the most tax efficient way for you to fund your retirement and then put a bespoke plan in place, which will support someone throughout retirement.

  1. Watch out for scams

The strain on household finances caused by the cost of living crisis could mean that some individuals are more vulnerable than ever this year. In fact, almost a quarter (22%) of UK adults have reported being approached by scammers offering free pension advice or a free pension review, investment opportunities, or a tax refund between March and May this year.

New regulations came into force in November 2021 which means suspicious transfers can be stopped from ending up in the hands of a fraudster, as pension trustees and scheme managers now have new powers to intervene, but employees still need to be on their guard. Whatever they’re planning to do with their retirement savings, it’s vital to check whether the company that they’re planning to use is registered with the Financial Conduct Authority (FCA) They can also visit the FCA’s ScamSmart website which includes a warning list of companies operating without authorisation or running scams

Jonathan Watts-Lay, Director at WEALTH at work, comments:

“The rising cost of living is understandably concerning, especially for those who are due to retire soon. We spend many years saving for our retirement so it’s important that employees receive the support needed for them to be able to make informed choices about their retirement plans, and to help them think about if retirement is really achievable for them right now. Many leading companies provide financial education, guidance and regulated financial advice for their retiring employees to help them understand the key issues affecting them and this support is going to be needed now more than ever.”





Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at the University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.