8 questions to ask before you retire: How to prepare for retirement
You have probably been saving into a pension for most of your working life, but how do you actually prepare to retire?
Everyone has a vision of what they would like their retirement to look like. It could include holidays abroad, taking up new hobbies, or spending more time with family and friends. But what do you actually have to do to access your pension, and what decisions do you need to make before you get there? In other words: how do you prepare for retirement?
You might feel as though you are facing a thousand questions as you approach retirement age. First of all, when can you actually afford to retire and what kind of lifestyle will your pension pot be able to fund?
Then there are some technical considerations to work through. Should you combine your various pension pots? What are the rules around the 25% tax-free cash and should you take it as a lump sum or in instalments? Should you buy an annuity or opt for pension drawdown?
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Of course, there is the state pension to consider too. Will you receive this automatically or do you need to actively claim it? Should you opt to receive it as soon as you hit state pension age or are there benefits to deferring your state pension?
Finally, there are administrative considerations. Do you need to contact your pension provider or will they contact you? What documents do you need to provide them with to access your money and where will any retirement income be paid?
If you are already feeling overwhelmed, don’t panic. There are experts who can help you navigate the process including your pension provider, a paid financial advisor, or the free Pension Wise service from MoneyHelper, which is backed by the government.
It is worth reading up on the various considerations well in advance so that you can take your time and avoid rushing into an often-irreversible decision.
“The number one message when it comes to accessing your pension is to take your time,” says Alistair McQueen, head of savings and retirement at insurance company Aviva. “You may have been saving towards your retirement for 40 years. Take more than 40 minutes when considering your options,” he adds. “Your decisions now could live with you for many years to come.”
1. Can you afford to retire?
We will only touch on this consideration briefly, as it is something we have covered at length in a separate piece: “Can you afford to retire in 2025?” The answer to this question will largely depend on the lifestyle you would like to lead.
Research from the Pensions and Lifetime Savings Association (PLSA) suggests a single person needs £14,400 per year to fund a basic retirement, while a couple needs £22,400. This would only allow you to holiday in the UK rather than abroad, and doesn’t include the cost of running a car.
If you wanted a comfortable retirement with things like foreign holidays, UK minibreaks and a streaming service subscription, you would need £43,100 per year (or £59,000 for couples) – considerably more. None of these calculations include the cost of renting a home or paying off a mortgage, so you need to factor this in if you don’t fully own your own home.
Those who qualify for the full amount of the new state pension will be able to fund most (or all) of a basic retirement using their state entitlement, based on the PLSA figures.
A single person would only need around £3,000 per year more in private pension income to pay for this, assuming they qualified for the full new state pension (around £11,500 per year). A couple who both received the full new state pension would be able to fund this using their state entitlement alone.
However, if you want to enjoy your golden years in a little more style, you will need to top this up with income from a private pension or other savings and investments.
Even if you are at the early stage of your working life, it is worth thinking about how much you might need so that you know how much to save. If you think you might fall short, you could consider topping up your pension contributions.
MoneyHelper’s pension calculator is a useful tool and can give you a forecast of whether you are on track to achieve your target income in retirement. You just need to plug in some details like your target retirement age, your current salary, and your current pension contributions.
2. Will your pension provider contact you in the lead-up to retirement?
While retirement is an exciting time, the process can also feel overwhelming. How do you know what steps you need to take in the lead-up to retirement, and will your pension provider offer support?
Guidance from the Pensions Regulator sets out the steps pension schemes should take, including sending wake-up packs and encouraging members to take up guidance from Pension Wise. A spokesperson said that “clear, timely and effective communication at retirement is crucial to help savers understand their options and access further support”.
We contacted several pension providers to find out more about what this could look like in practice.
Aviva’s McQueen said: “To support savers in their decision-making process, pension providers will typically begin writing to you about accessing your pension from age 50 onwards, and every five years thereafter until your pension pot is accessed.
“In addition, six months before your pre-selected retirement age, your pension provider will typically write to you with more detailed information about your options. This more detailed information is referred to as the ‘retirement options pack’.
“Some pension providers may follow different timelines, so if you are unsure of when you might receive your information you could proactively contact your pension provider, or ask your employer if you are saving in a workplace pension scheme.”
Two other major pension providers we contacted said they also get in touch with members at around age 50.
3. Have you updated your expected retirement age?
Many pension funds have lifestyling arrangements which adjust the asset allocation of your portfolio the closer you get to retirement. Typically, this involves “de-risking” your fund by increasing the allocation to bonds and reducing the allocation to more volatile assets like equities.
Often, your pension provider will put you into a default strategy where these arrangements are linked to an “expected retirement age”.
With this in mind, it is important that you update your target retirement age if and when your plans change. Switching to a low-risk strategy too soon could limit the growth potential of your pension, while being in a high-risk strategy could lead to big fluctuations in the value of your pot just as you are ready to start drawing the money.
4. Should you combine your pension pots?
Lots of people change jobs several times in their career, which can result in several pension pots. This can create an administrative headache. Figures from the Pensions Policy Institute (PPI) suggest there is currently £31.1 billion lying in unclaimed, inactive, or lost pension pots in the UK.
There are some circumstances where you might want to hang on to an old pension rather than consolidating it with another pot – for example if you are lucky enough to have been a member of a defined benefit scheme.
However, there are also some circumstances in which you might want to consider consolidating your pots, for example if the fees on one pension pot are particularly high or the pot is very small and you want to reduce the administrative burden.
“Having one overarching view of your pensions not only saves you time, administration and potentially cost, it also gives you a true sense of what you really have, and this can have a huge impact on your retirement decision making,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.
“For instance, if you have several small pensions, you may be tempted to take them as cash whereas if they are consolidated into one larger amount you are more likely to take a longer-term view,” she adds.
Just remember that transferring a pension is often an irreversible choice, meaning it makes sense to take advice if you are unsure. Morrissey also encourages savers to check they aren’t incurring any exit fees when transferring, or missing out on benefits like guaranteed annuity rates.
Finally, if you think some of the £31.1 billion in lost pension savings could be yours, use the government’s pension tracing service to track it down. One of the most important things you can do is update your personal details (like your home address) any time something changes.
5. How do you want to take your tax-free cash?
When you retire, you can take 25% of your pot as tax-free cash. The remainder will be taxed as income each time you make a withdrawal. However, you have some flexibility about how you would like to take the tax-free portion.
Savers can either withdraw the cash as one lump sum or take it in instalments. A lot could depend on what you want to use the money for. Perhaps you want to use it to pay off the remainder of your mortgage before you quit the workplace, or maybe you would prefer to use the money to support your lifestyle over a longer period of time.
Withdrawing the money in instalments (with a proportion still invested) could allow it to continue to grow, increasing the size of your tax-free portion over time. However, there are a range of considerations. We look at the pros and cons of each route in a separate piece: “Should you take a 25% tax-free pension lump sum in instalments?”
6. Should you buy an annuity?
Most people saving into a pension scheme today will have a defined contribution pot. When you decide to retire, a couple of options are available to you.
Some savers use their pension pot to buy a guaranteed income (known as an annuity). This will then pay you a certain amount of income at regular intervals throughout your retirement – either for a pre-agreed number of years or for life.
Others decide to go down the route of pension drawdown. This is when you access a portion of your pension savings while leaving the rest invested (hopefully to continue growing).
Both routes come with pros and cons. The attractiveness of annuities can vary depending on the prevailing market environment, as you lock in an annuity rate at the point of purchase. Annuity rates are currently high.
Meanwhile, drawdown can offer greater flexibility and give you the option of leaving any remaining pension wealth to a beneficiary when you die. The downside is that it comes with greater uncertainty as the value of your investments could go down as well as up.
Some savers opt for a combination of the two routes, using a portion of their pot to buy a guaranteed income while leaving the rest in drawdown.
If you decide to buy an annuity, it is very important that you shop around to secure the best rate rather than automatically buying an annuity from your current pension provider. An annuity search engine can help with this.
Read the terms and conditions closely to understand what you are buying, as providers offer different types of annuities. “If you have a partner, then you may want to consider a joint life annuity, so they continue to receive income after you die,” Morrissey explains. “You may also want to consider whether it’s right to opt for an annuity that rises with inflation each year.”
Buying an annuity is an irreversible decision, so it makes sense to seek guidance or pay for advice before moving ahead.
One final point worth mentioning is that there used to be tax benefits associated with leaving your pension invested (rather than buying an annuity), as inherited pensions fell outside of the inheritance tax net. However, this is set to change from April 2027 after an announcement made in the Autumn Budget.
Going forward, those who inherit a pension pot could face both income tax and inheritance tax. We take a closer look in a separate piece: “Pensions face 'double tax' due to inheritance tax change – what are your options?”
7. How do you claim the state pension?
Recipients of the new state pension will not receive it automatically – you have to claim it.
To do this, you will need the date of your most recent marriage, civil partnership or divorce, as well as the dates of any time spent living or working abroad. You will also need your bank details and any social security numbers that you have for foreign state pension schemes.
You can apply for the state pension online via the government website, by phone or by post.
If you are applying online, you will need your invitation code. This will arrive in the post before you hit state pension age. If you have not received an invitation letter but you are within three months of reaching state pension age, you can request an invitation code.
To apply by phone, call the Pension Service on 0800 731 7898. Those who wish to apply by post should also call this number and ask for a state pension claim form to be sent to them.
The process differs slightly if you retire abroad. Further details can be found on the government website.
There is also the option to defer your state pension if you don’t need the money just yet, perhaps because you have decided to continue working past retirement age. In return, you will qualify for a higher amount when you do decide to claim. Whether this is beneficial over the long term depends on how long you live.
8. Are there any administrative considerations – and how long does it take to retire?
When planning your retirement, it is important to know how long it will actually take to access your savings once you have requested them from your pension provider.
If you don’t get this administrative step lined up correctly, it will be difficult to plan your retirement date and you might end up having to fall back on other savings to plug the gap until your pension money comes through.
Laura Burrell, pensions policy and propositions manager at the Money and Pensions Service told MoneyWeek: “When savers should contact their pension provider will depend on various factors, in particular how they want to access their pension and how long their provider’s process typically takes. If they are not sure, they should ask their provider.
As a general rule, Burrell recommends contacting your provider at least six months before your intended retirement date.
Also bear in mind that deciding to consolidate your pensions before accessing the funds could result in some additional steps, as the provider will need to run checks on the receiving scheme to reduce the risk of scams.
Finally, it is worth contacting your pension provider in advance to understand what information they will need from you before giving you access to your funds. This could include proof of ID, such as your passport, but you may also need to answer some more complex questions.
For example, MoneyHelper told us that one consumer once wrote to them to say they had experienced “persistent delays and errors in processing”, as a result of “administrative errors and a lack of clear guidance”. Another consumer said they were struggling with paperwork and answering questions like how much of the (now abolished) lifetime allowance they had used.
With this in mind, make sure you factor in time for any questions or complications that could arise.
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Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She previously worked at MoneyWeek and Invesco.