How to plan for your retirement

Price Mann • March 10, 2021

Get on track for a comfortable retirement.

If you have a defined contribution pension scheme – whether private or through your employer – your retirement savings have probably been hit quite hard by the COVID-19 pandemic over the past 12 months.

That’s because pension funds invest in the stock market and recent turbulence, which has caused big rises and falls, have had a significant impact on how much is in your pot.

The average pension lost around 15% when the coronavirus first hit the stock market back in March 2020, before recovering 13% of the lost ground by the end of August 2020.

Obviously, savers who are in their 30s or 40s have time on their side to potentially ride out market volatility and get their pension savings back on track.

The same can’t be said for people nearing retirement. According to a report from the People’s Pension, 74% of people either approaching retirement or aiming to retire in the near future are on course to run out of money in their early to mid-80s.

In addition, only one in ten respondents are making detailed money plans for the future, suggesting that the vast majority have their heads in the sand.

Whatever stage of your life you are at, planning for your retirement has arguably never been more important than it is now after last year’s events.

Why is planning important?

In short, retirement planning has evolved at a rate of knots over the last two decades or so. Fewer people enjoy the benefits of a final-salary pension, which pays out an income based on how much you earn when you retire, while you have to wait longer to receive the state pension.

The state pension is nowhere near enough for most people to retire on in 2020 and beyond, due to the cost of living in the UK. Think of the state pension as more of a top-up to other retirement income, rather than something to rely on.

Workplace pensions have become more common in recent years, after the introduction of auto-enrolment in October 2012. Since then, more than 10 million employees have been automatically enrolled into defined contribution pension schemes.

Crucially, around five million self-employed workers are not eligible for workplace pensions. That might change in the future if new legislation comes in but last year, investing in property remained the most popular retirement planning option for the self-employed, according to the Office for National Statistics.

Personal pensions, stakeholder pensions and self-invested personal pensions can also have a role to play in a retirement planning strategy, especially for those who are excluded from auto-enrolment like the self-employed.

There are plenty of options to consider when it comes to accumulating your pension pot, which will hopefully allow you to maintain a comfortable quality of life after you retire. Seek professional advice to fully understand your choices.

How much will be required?

The longer you are able to save for retirement, the lower the amount you will need to set aside. Obviously, that implies that the earlier you start saving for retirement, the easier it should be.

With the cost of living in the UK increasing and many variables to consider – not least the age at which you start saving and when you intend to retire – only you know how much you need to fund a comfortable retirement.

A recent study from SunLife suggested that the average person over the age of 55 needs £114,436 to retire in 2021. On average, respondents aged 55-60 required more (£180,741) than those in their 60s (£101,811).

That’s by no means a one-size-fits-all approach, but it does serve to illustrate how retirement goals differ depending on the age at which you start saving into your pension pot.

Savers in their 20s, for example, would require much more than people nearing retirement. But they could put in smaller amounts due to the having many years of their careers ahead.

Whatever your age, you can put up to £40,000 into your pension pot in 2020/21, although a lower amount can apply if you’ve:

• started flexibly accessing your pension from the age of 55

• your net-relevant earnings are lower

• if you earn over a certain amount.

If the total value of your pension pot exceeds £1,073,100 when the time comes to start drawing your pension then you may have to pay a tax charge.

Where to start

If you’re employed and in your 20s or 30s, it’s a wise idea to take advantage of your workplace pension. Every employer is legally obliged to auto-enrol workers over the age of 22 and earning more than £10,000.

Self-employed workers in this age group should consider saving into a personal pension or a lifetime ISA to kickstart their retirement savings. These options are also open to employees to supplement other savings going into their pension pots.

Consider your appetite for risk at this stage of your career. Usually, workers who are early in their careers can be more confident about putting their savings into riskier investments as they have many working years left to ride out any volatility.

It often makes sense to reduce the level of risk for savers who are nearing retirement as they won’t have much time left in their careers for their savings to recover from any high-risk losses.

Nearing retirement

If you’re approaching retirement, get an idea of how much your retirement income is likely to be as things stand.

Also be aware that this income will be liable for income tax if it, combined with any other income you receive, is above the personal allowance (£12,500 in 2020/21).

Start by checking your state pension. A couple claiming the full basic state pension will get £13,988 a year under the old system in 2020/21 and around £18,220 from the new state pension (if both people receive the new state pension in full).

Then go through all of your anticipated expenditure in retirement, including things like utility bills, insurance premiums or (when the pandemic is over) costs for holidays. You might also have a mortgage to pay off, although it’s always wise to repay that before you retire, along with any other debts.

Armed with a clearer picture of how much you have in your pension pot, you can begin to have an idea of the earliest you could start drawing your pension. There’s far greater flexibility when it comes to accessing your pension from the age of 55, although the earlier you start raiding your savings, the earlier your pot might start to reduce. This can leave you short on income when you retire.

Tax implications in retirement

Anyone over the age of 55 can take their whole retirement savings as a lump sum, with the first 25% tax-free and the rest taxed at their marginal rate.

Be aware that withdrawing this as a lump sum can push you into a higher income tax band, potentially doubling your income tax bill if you are a basic-rate taxpayer.

For example, if you earn £45,000 a year in 2020/21, you will pay income tax at 20%. If you take £10,000 out of your pension, which is not covered by the tax-free element, your top income tax rate will double to 40% as the withdrawal takes your income to £55,000 and pushes you into the higher-rate band.

If you were to withdraw more than £105,000 from your pension in 2020/21, you would pay the additional rate at 45% as this income tax band starts at £150,000. Always seek expert advice if you are considering drawing your pension.

If you continue to work beyond your state pension age, employee national insurance contributions will no longer be deducted from your pay packet.

Talk to us about retirement planning.

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When should I look at moving from a sole trader to a limited company for tax-efficient savings?

By Price Mann • September 24, 2025

When should I look at moving from a sole trader to a limited company for tax-efficient savings?

Managing risk in your investment portfolio

By Price Mann • September 17, 2025

Managing risk in your investment portfolio Tips for a balanced investment approach. Investment markets rise and fall, yet the goals that matter to you – retirement security, children’s education, a comfortable buffer against the unexpected – remain constant. Managing risk means giving each goal the best chance of success while avoiding avoidable shocks. You can do that by holding the right mix of assets for your timeframe, using tax wrappers efficiently, and controlling costs and emotions. The 2025/26 UK tax year brings unchanged ISA and pension allowances. This guide explains the key steps, such as diversifying sensibly, rebalancing with discipline, safeguarding cash, and monitoring allowances, so you can stay on track whatever the markets deliver. It is an information resource, not personal advice. Start with a clear plan Define goals and timeframes: Decide what each pot of money is for (for example: house deposit in three years, retirement in 20 years). Time horizon drives how much short-term volatility you can accept. Short-term goals usually need more cash and high-quality bonds; long-term goals can justify more equities. Set your risk level in advance: Ask yourself two questions. Risk capacity: How much loss could you absorb without derailing plans (linked to your time horizon, job security and other assets)? Risk tolerance: How do you feel about market swings? Use a more cautious mix if you are likely to sell in a downturn. Ring-fence cash needs: Keep 3-6 months’ essential spending in easy-access cash before you invest. This reduces the chance of selling investments at a low point to meet bills. Choose simple, diversified building blocks: Broad index funds and exchange-traded funds (ETFs) covering global equities and high-quality bonds provide instant diversification at low cost. Avoid concentration in a single share, sector or theme unless you are comfortable with higher risk. Diversification: Spread risk across assets, regions and issuers Diversification reduces the impact of any single holding. Practical ways to diversify include the following. Assets: Use both growth assets (equities) and defensive assets (investment-grade bonds, some cash). Regions: Combine UK and global holdings. Many UK investors hold too much domestically; global funds spread company and currency risk. Issuers: In bonds, mix UK gilts and investment-grade corporate bonds to diversify credit exposure. Currencies: Equity funds are commonly unhedged (currency moves add volatility but can offset local shocks). For bonds, many investors prefer sterling-hedged funds to lower currency risk. A diversified core helps the portfolio behave more predictably across different market conditions. You can add small “satellite” positions if you wish, but keep any higher-risk ideas to a modest percentage of the whole. Use tax wrappers to reduce avoidable tax and trading frictions Efficient use of ISAs and pensions is one of the most effective risk-management tools because it protects more of your return from tax. ISAs (individual savings accounts) Annual ISA allowance: £20,000 for 2025/26. You can split this across cash, stocks & shares and innovative finance ISAs. Lifetime ISAs (LISAs) are capped at £4,000 within the overall £20,000. Junior ISA (for children under 18): £9,000 for 2025/26 (unchanged). ISAs shield interest, dividends and capital gains from tax. Rebalancing inside an ISA does not create capital gains tax (CGT), which helps you maintain your chosen risk level at lower cost. Note: There has been public discussion about potential ISA reforms, but the current 2025/26 allowance is £20,000. If government policy changes later, we will let you know. Pensions (workplace pension, personal pension/SIPP) Annual allowance: £60,000 for 2025/26 (subject to tapering for higher incomes; see below). You may be able to carry forward unused annual allowance from the three previous years if eligible. Tapered annual allowance: If your adjusted income exceeds £260,000 and threshold income exceeds £200,000, the annual allowance tapers down (to a minimum of £10,000 for 2025/26). Money purchase annual allowance (MPAA): £10,000 for 2025/26 once you’ve flexibly accessed defined contribution benefits (for example, taking taxable drawdown income). Tax-free lump sum limits: The lifetime allowance has been replaced. From 6 April 2024, the lump sum allowance (LSA) caps total tax-free pension lump sums at £268,275 for most people, and the lump sum and death benefit allowance (LSDBA) is £1,073,100. Pensions are long-term wrappers designed for retirement. Contributions usually attract tax relief and investments grow free of UK income tax and capital gains tax while inside the pension. Personal savings: Interest allowances Personal savings allowance (PSA): Basic-rate taxpayers can earn up to £1,000 of bank/building society interest tax free; higher-rate taxpayers up to £500; additional-rate taxpayers do not receive a PSA. Starting rate for savings: Up to £5,000 of interest may be taxable at 0% if your other taxable non-savings income is below a set threshold. For 2025/26, that threshold is £17,570 (personal allowance of £12,570 plus the £5,000 starting rate band). Dividends and capital gains outside ISAs/pensions Dividend allowance: £500 for 2025/26 (unchanged from 2024/25). Dividend tax rates remain 8.75%, 33.75% and 39.35% for basic, higher and additional-rate bands, respectively. The annual capital gains tax (CGT) exempt amount , £3,000 for individuals (£1,500 for most trusts). CGT rates from 6 April 2025: For individuals, 18% within the basic-rate band and 24% above it, on gains from both residential property and other chargeable assets (carried interest has its rate). HMRC examples confirm the £37,700 basic-rate band figure used in CGT calculations for 2025/26. CGT reporting reminder: UK residents disposing of UK residential property with CGT to pay must report and pay within 60 days of completion. Other gains are reported via self assessment (online filing deadline is 31 January following the tax year; if you want HMRC to collect through your PAYE code, file online by 30 December; payments on account remain due 31 January and 31 July). Why this matters for risk: Using ISAs and pensions lowers the drag from tax, allowing you to rebalance and compound returns more effectively. Outside wrappers, plan disposals to use the £3,000 CGT allowance and each holder’s tax bands and consider transfer to a spouse/civil partner (no CGT on gifts between spouses) before selling where suitable. Bonds and cash: Interest-rate and inflation considerations Interest rates: The Bank of England reduced the Bank Rate to 4% at its August 2025 meeting. Bond prices can move meaningfully when rates are high or changing, especially for longer-dated bonds. Consider the duration of bond funds and whether a mix of short- and intermediate-duration exposure suits your time horizon. Inflation: Headline Consumer Price Index (CPI) inflation was 3.6% in the 12 months to June 2025, while the CPI including owner occupiers’ housing costs (CPIH) rose by 4.1%. Inflation affects the real value of cash and bond coupons, and can influence central bank policy, affecting bond prices. Review whether your mix of cash, index-linked gilts and conventional bonds remains appropriate as inflation and interest-rate expectations evolve. Cash strategy: For short-term needs, spread deposits to respect Financial Services Compensation Scheme (FSCS) limits. For longer-term goals, excessive cash can increase the risk of falling behind inflation. Control costs and product risk Keep fees low: Ongoing charges figures (OCFs), platform fees and trading costs compound over time. Favour straightforward funds and avoid unnecessary expenses. Understand the product: Structured products, highly concentrated thematic funds or complex alternatives can behave unpredictably. If you use them, size them modestly within a diversified core. Use disciplined trading rules: Avoid frequent tinkering. Set rebalancing points (see below) and resist acting on short-term news. Rebalancing: Why, when and how Markets move at different speeds. Without rebalancing, a portfolio can “drift” to a higher or lower risk level than you intended. Follow this simple rebalancing framework. Invest in something that will rebalance automatically (i.e. certain ETFs) Frequency: Review at least annually. Thresholds: Rebalance when an asset class is 5 percentage points away from target (absolute) or 20% away (relative). Tax-aware execution: I prefer to rebalance inside ISAs and pensions. Outside wrappers, use new cash or dividends where possible; then consider selling gains up to the £3,000 CGT allowance and factoring in dividend and savings allowances. Implementation tip: If markets are volatile, use staged trades (for example, three equal tranches a few days apart) rather than one large order. Safeguard cash and investments with the right protections FSCS protection (cash deposits): Up to £85,000 per person, per authorised bank/building society group is protected. Temporary high balances from specific life events can be covered up to £1m for six months. The Prudential Regulation Authority has consulted on raising the standard deposit limit to £110,000 and the temporary high balance limit to £1.4m from 1 December 2025 (proposal stage at the time of writing). FSCS protection (investments): If a regulated investment firm fails and your assets are missing or there is a valid claim for bad advice/arranging, compensation may be available up to £85,000 per person, per firm. This does not protect you against normal market falls. Operational risk checks: Use Financial Conduct Authority authorised providers, check how your assets are held (client money and custody), enable multi-factor authentication, and keep beneficiary and contact details up to date. Currency risk: When to hedge For equities, many long-term investors accept currency fluctuations as part of the growth engine, since sterling often weakens when global equities are stressed, partly offsetting losses. For bonds, many prefer sterling-hedged funds to keep defensive holdings aligned with sterling cashflow needs. A blended approach works: unhedged global equities plus mostly hedged bonds. Behavioural risks: Keep decisions steady Common pitfalls include chasing recent winners, selling after falls or holding too much cash after a downturn. Tactics to keep you on track include: automate contributions (regular monthly investing), which spreads entry points write down rules (what you will do if markets fall 10%, 20%, 30%) separate spending cash from investments so you do not sell at weak prices to fund short-term needs use portfolio “buckets” in retirement. Retirement planning: Sequence-of-returns risk and withdrawals If you are drawing an income from investments consider the following. Hold a cash buffer (for example, 12–24 months of planned withdrawals) to avoid forced sales during sharp market falls. Be flexible with withdrawals: Pausing inflation-indexing or trimming withdrawals after a poor market year can help portfolios last longer. Use tax bands efficiently: Consider the order of withdrawals (pension, ISA, general investment account) to make use of personal allowance, PSA, dividend allowance and the CGT annual exempt amount. Take care around the MPAA if you are still contributing to pensions after accessing them. Putting it together: A repeatable checklist Confirm goals and time horizons. Check emergency cash (3-6 months). Map your target asset allocation. Use wrappers first: Fill ISAs and workplace/personal pensions as appropriate. Keep costs low: Prefer broad index funds/ETFs. Set rebalancing rules: Annual review + thresholds. Document tax items: Monitor dividend/CGT use; note 60-day property CGT rule; plan for 31 January/31 July self assessment dates if relevant. Review protection limits: Spread larger cash balances across institutions in line with FSCS; note proposed changes for late 2025. Schedule an annual review to update assumptions for interest rates, inflation and any rule changes. Get in touch if: you are unsure how to set or maintain an asset allocation you plan to draw income and want to coordinate wrappers and tax bands you expect large one-off gains or dividends and want to plan disposals or contributions you have concentrated positions (employer shares, single funds) and want to reduce single-asset risk tax-efficiently you are considering more complex investments. Wrapping up Risk management is not a one-off task but an ongoing discipline. By defining clear objectives, spreading investments across regions and asset classes, using ISAs and pensions to shelter returns, and reviewing allocations at least annually, you create a framework that limits surprises and keeps decisions rational. Document key dates – self assessment payments on 31 January and 31 July, the 60-day CGT rule for property, and the annual ISA reset on 6 April – so tax never forces a sale at the wrong time. Check deposit limits and platform safeguards for peace of mind, and keep a written record of your rebalancing rules to prevent knee-jerk trades. If life events or regulations change, revisit your plan promptly. A measured, systematic approach lets your portfolio work harder while you stay focused on the goals that matter most. Important information This guide is information only and does not account for your personal circumstances. Past performance is not a guide to future returns. The value of investments and income from them can fall as well as rise, and you may get back less than you invest. Tax rules can change and benefits depend on individual circumstances. If you need personalised advice, please contact a regulated financial adviser. If you’d like advice on managing your portfolio, get in touch.