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Five retirement income options considered

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This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.

You cannot rely on a salary when you retire. As such, it is crucial to have a plan for generating a healthy income in retirement. Unfortunately, the state will almost certainly not cover all of your expenses. Rather, you will need to ensure that you can afford to support your lifestyle. Below, our financial planning team at Castlegate offers an overview of different income options when people retire – along with the advantages and disadvantages.

We hope you find this content helpful. If you would like to discuss any of these matters or your own financial plan please get in touch to arrange a no-obligation financial consultation, at our expense:

01476 855 585


#1 State pension

The primary retirement income provided by the government is the state pension. In 2021-22, you can start receiving this from your state pension age. This has been 66 for men and women since April 2020, rising to 67 by 2029. At the time of writing, the full new state pension amounts to £9,110.40 per year and the income is currently protected by the “triple lock” system – which ensures that it rises each year either with wages, prices or inflation (whichever is highest).

Over-65s rely heavily on the state pension in retirement – comprising £6 in every £10 of income, according to one 2018 study by FT Adviser. To receive any at all, you need at least 10 years of qualifying National Insurance Contributions on your record. For the full entitlement, the minimum requirement is 35. There may come a time, however, when the triple lock is eventually removed. With the UK population aging and more pressure piling on the pension budget, savers need to not only maximise their state pension entitlement but also build additional income streams for retirement.


#2 Workplace pensions

In 2021-22 the auto enrolment rules require that employers put at least the equivalent of 3% of a worker’s salary into their workplace pension. An employee must also contribute at least 5%. This assumes that you have a defined contribution pension, where you build up a pot of money that will eventually be used to generate a retirement income through buying an annuity or via income drawdown. Another option may be that your employer offers a final salary scheme, which pays out a lifetime income in retirement based on factors such as your years of service and average career earnings.

Workplace pensions can play a vital role in a retirement plan. However, it is important to check that you are contributing enough. You should also check if your scheme offers good investment options and with reasonable fees. If your scheme does not allow you to pursue your desired investment goals and strategy then it may be appropriate to open a personal pension (e.g. a Self-Invested Personal Pension (SIPP) and focus your retirement investments there, whilst continuing to enjoy employer contributions into your workplace pension.


#3 tax-efficient investments

A workplace or personal pension is not your only option for retirement income outside of the state pension. Other options include individual savings accounts (ISAs) and tax-efficient investment vehicles such as Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS). ISAs are often attractive ways of increasing your net worth in retirement if you are approaching your pension limits (e.g. you are in danger of exceeding your Lifetime Allowance). In 2021-22, you can put up to £20,000 into your ISA(s) each tax year and can generate interest, dividends and capital gains free from tax. There is no age limit on when you can access your ISA money and – unlike pensions – there is also no limit on the maximum amount you can save.

VCTs and EIS can be an attractive option for investors with a higher appetite for investment risk, who are looking for tax-efficient returns and who have an interest in early-stage companies. With both, you can receive tax relief if you hold your shares for a minimum period.


#4 Property

For a minority of people, property investments can form an important retirement income stream – particularly those with one or more rental properties. By retirement, the mortgage(s) may be fully paid off and a much higher yield from tenants can be achieved, allowing more of the income to go towards funding your retirement lifestyle. However, here you do need to factor in a number of potential drawbacks. Firstly, your property asset(s) are likely to be difficult to sell quickly should the need arise – for instance, if you need to fund your long-term care. Secondly, you will need to account for maintenance, repairs and periods of tenant absenteeism. The COVID-19 pandemic also highlighted a problem where many tenants were unable (or refused) to pay their rent during the Eviction Ban period – racking up £1,000s in unpaid rent for some landlords, crushing their portfolios and income. Be careful to consider any property investment plans for retirement with a qualified financial adviser who can help you effectively navigate areas of potential risk.


#5 Lifetime ISA

A final option to consider for a retirement income is the lifetime ISA – or LISA. This tax-efficient investment wrappers allows you to save up to £4,000 every tax year, where the capital is earmarked for a first home purchase or for your retirement. The government will then add a 25% boost to your contributions, up to a maximum of £1,000 per tax year.


Conclusion & invitation

If you are interested in discussing your own financial plan or protection strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 855 585