Skipton Financial Services
Friday, January 13, 2017 - 15:57

How to address an income shortfall

Repay your debts

According to December 2016 research by more 2 life, over half of mortgage borrowers retire without having paid it all off.

If you’re not on track to pay off your mortgage before you plan to retire – or have other debts, like credit cards – it might help to prioritise them while you’re being paid a salary. Otherwise you’ll have to use part of your retirement savings to pay off debts.

Pay more into a pension

If you have a workplace pension, increasing the amount you pay into it could make a big difference to your future.

Review your pension plans

Your pension is arguably the most important investment you will ever make. As you get closer to retirement it can really help to review it.

Not only will it help you see if there’s still time to increase your contributions, you can check if it is invested in a way that suits your circumstances and retirement ambitions.

Consider your defined benefit pension options

If you have a defined benefit pension, the amount you’ll receive will depend on factors such as how many years you’ve worked for your employer and your earnings. You should receive an annual statement detailing how much income you’re on track to receive; it's worth noting;

  • Many defined benefit schemes start to pay you a pension in line with state pension age.
  • Some schemes allow you to start taking your pension from as early as 55, but this can reduce the amount you get.
  • If you don't need your pension immediately when you reach the age you can start to claim it, you may also be able to delay receiving your pension. Deferring it could mean you get a higher income when you do take it.
  • With these schemes, you may be able to increase your income through additional pensions or Additional Voluntary Contributions. You can speak to your scheme administrator for details on these. 

Your existing savings and investments could play a big role in funding your retirement, so it's important to have the right plans in place.

Review your savings and investments 

You can use our calculator to get a projection of  the returns your savings and investments could provide. Or our financial advisers can assess your current arrangements to see how they measure up towards your retirement goals. Backed by our head office-based technical research team, they can present tailored recommendations – with no pressure to act.

Our recommendations are likely to include stock market-linked investments. These aren’t like building society savings accounts, as your capital is at risk and you may get back less than you invest. The value of your investments and any income from them may fall as well as rise. 

Buy National Insurance Contributions for state pension

The state pension rules were changed in April 2016 – so it’s worth checking if you’re on track to receive the full amount.

To qualify for the full flat rate state pension, you’ll need to have at least 35 years’ worth of National Insurance Contributions. You can request a forecast of how much you’re set to receive. If there’s a shortfall, you might be able to make voluntary contributions to get you up to the full amount.

Delay retiring

For some people this would be the last resort. But if you feel fit and able, you could always work for a few extra years – potentially by phasing your retirement.

Working longer could allow you more time to build stronger retirement income plans, although you need to be realistic about the level of difference it would actually make, and consider any tax implications.

Another way of boosting your income is to defer taking state pension. For every nine weeks you put off claiming for it, the amount you can receive will increase by 1%. This could be a good option if you reach state pension age and don’t need the income straightaway.


Speak to an adviser

Our pension review service is designed to look at your existing pensions to see if they’re likely to be sufficient to fund the lifestyle you want in later life.

Your financial adviser will suggest ways to strengthen your plans if there’s a shortfall, to help you feel more confident about your future.

Matthew Carr, Skipton Financial Adviser

Seeking financial advice as soon as possible will help you make meaningful changes that suit your individual needs. A realistic plan could reduce any potential retirement income shortfalls occurring when you retire.

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