Helping employees retire with confidence: Tips for 2025
Retirement is one of the biggest financial decisions people make so it’s important that employees understand all the options.
WEALTH at work’s top tips for those retiring in 2025:
1. Work out costs in retirement
According to the Pensions and Lifetime Savings Association (PLSA), a single person will need about:
- £14,400 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)
- £31,300 a year for a moderate standard of living (one foreign holiday a year and more frequent eating out); and
- £43,100 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 £22,400, £43,100 and £59,000, respectively.
2. Track down all pensions
At least 4.8 million pension pots are considered ‘lost’ among the UK population, with 1 in 10 workers believing they could have lost a pension pot worth more than £10,000.
One of the main reasons for this is because a person will have on average nine jobs in their lifetime, so could easily end up with many different pension pots with several providers which can easily be forgotten about.
There are ways to locate lost pensions including using the Government’s Pension Tracing Service (www.gov.uk/find-pension-contact-details).
3. Calculate all sources of retirement income
Work out the value of all savings and investments. Many people think of their pension as the only source of income in retirement, but other assets such as ISAs and other savings and investments can all be used.
4. Check state pension entitlement before 5 April deadline
Some people don’t realise that you need a minimum of 35 years of NI (National Insurance) contributions to get the full state pension payment.
This can be difficult for those who may have taken a career break or time off for child or elderly care.
It is worth noting that after 5 April 2025, individuals will only be able to claim for six years of NI credit, so it may be worth considering filling any extra gaps in your record now.
5. Consider how to access pension income
It’s important for people to think about how they plan to take their pension savings to generate an income in retirement.
For those with defined benefit (DB) pensions, retirement income is usually based on a rate set by the scheme (the accrual rate) and typically is a percentage or fraction of their salary for each year they have been an active member of the pension.
Defined contribution (DC) pensions can be accessed from age 55, and people will need to decide how they want to do this.
Options include taking income drawdown (where the pension money is still invested but cash is taken as and when needed), buying an annuity (which is a fixed sum of money paid to someone each year), taking it as a cash lump sum, or a combination of these options.
6. Check if retirement is affordable
Another step is working out how much pension savings would be needed to generate your desired level of annual income at retirement.
For a single person to reach a moderate living standard (i.e. £31,300 a year), they would need £375,100 if taking income drawdown, or £406,900 if they purchase an annuity.
People who are single tend to need a bigger amount than a couple as they will have a lower state pension, lower tax-free allowance and higher relative expenses.
If someone is worried that they haven’t saved enough, it may be worth delaying retirement or continue working part time. This would enable them to make more pension contributions, and they would be able to take advantage of tax relief and employer contributions for longer to build up their savings.
7. Shop around
Before purchasing any retirement products, it is important that people shop around. For example, income drawdown charges can vary depending on the provider, the type of charges, and the size of your pension pot.
Individuals should 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 they need it.
8. Don’t pay unnecessary tax
Unfortunately, some people don’t realise that only the first 25% (up to a maximum of £268,275) of a DC pension is tax-free, and the remaining 75% is taxed at the same rates as earned income.
So, if they decide to take their pension as a cash lump sum, they may unwittingly become a higher rate taxpayer.
9. Beware of scams
Action Fraud found that pension scam victims lost more than £17.7 million in 2023. Whatever someone is planning to do with their retirement savings, it’s vital they check whether the company that they’re planning to use is authorised and regulated with the Financial Conduct Authority (FCA).
10. Don’t go it alone
Getting financial education, guidance and investment advice at retirement can really help. Pension Wise offer free guidance appointments to talk about someone’s pension options.
With 60% of employers offering or planning to offer pre-retirement planning for employees, the workplace is a great source of support.
They may also offer access to a financial adviser which can be especially beneficial at retirement, as they will help someone look at all assets and work out the most tax efficient way for them to fund their retirement, before putting a bespoke plan in place.
“We spend many years saving for our retirement, and deciding how to manage this money is one of the biggest financial decisions people make. It is heartbreaking when people make mistakes with their hard-earned savings which could have been so easily avoided,” said Jonathan Watts-Lay, director at WEALTH at work.
“This is why many employers and trustees are now working together with financial wellbeing and retirement specialists to help individuals engage with their pensions and savings throughout their career, and then to understand the options at retirement. However, before proceeding it’s essential to carry out due diligence on any providers.
"This includes ensuring that they are workplace specialists and checks on advice firms should cover areas such as qualifications of advisers, the regulatory record of the firm, compliance processes and the pricing structure.
Ultimately, empowering employees with access to appropriate support at the right time can improve financial capability and resilience which should result in better retirement outcomes for all,” concluded Watts-Lay.
In partnership with WEALTH at work
WEALTH at work is a leading financial wellbeing and retirement specialist - helping those in the workplace to improve their financial future.
