Retirement expert shares five income-boosting tips for people nearing pension age

State Pension now provides essential financial support for 12.9 million older people across the country, including more than 1.1m retirees living in Scotland. This regular payment of up to £221.20 per week is available for those who have reached the UK Government’s eligible retirement age, which is now 66 for both men and women, and have paid at least 10 years’ worth of National Insurance contributions.

However, pensions expert Helen Morrissey is urging those reaching retirement age this year to plan ahead to ensure they maximise their income in later life and know exactly how much money to expect. The head of retirement analysis, Hargreaves Lansdown, said: “If 2025 starts the countdown to your longest holiday - otherwise known as retirement - then there are lots of plans to make.”

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Ms Morrissey continued: “Taking some time to get everything in order can help you look to the future knowing that you’ve got the most from your retirement planning. Even taking small steps can make a massive difference to how much you end up with.

“Tracking down lost pensions could add thousands to your retirement pot while consolidating pensions can give you a whole new perspective on what you have. Taking the time to check your State Pension entitlement can give you the confidence of knowing what you are getting from the state - and if there are gaps you have the time to fill them.

“You also have the time to plan your retirement income strategy and consult a financial adviser if needed on whether annuities, income drawdown or a mix of the two are your best bet.”

She added: “Last and by no means least, you can give some thought to how you want your days to look. You may be happy to leave the 9-5 behind but with no plan in place you may find you get bored and don’t enjoy your retirement the way that you should. Volunteering, charity work, travelling and even part-time work can give some much-needed structure to your time.”

Five tips for people due to retire in 2025

Find those lost pensions

Tracking down lost pensions can potentially add thousands of pounds to how much you end up with in retirement. As we move jobs and homes it can become easy to lose track of old pensions - it’s a massive problem with the Pensions Policy Institute estimating there are almost 3.3m lost pensions worth a staggering £31.1bn in the system.

It’s worth taking the time to sit down and make a list of all your old employers and checking to see if you have pension paperwork for each of them. If you don’t and you think you may have had a pension with them then it’s worth contacting the government’s Pension Tracing Service. All you need is either your employer’s name or that of your pension provider. The service can’t tell you if you do have a pension with them but they can give you contact details so you can find out.

Consolidation could work

Once you’ve found your lost pensions it might make sense to consolidate them into a low-cost SIPP. 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. 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.

However, before you decide to bring your pensions together make sure you aren’t potentially incurring exit fees or missing out on benefits such as guaranteed annuity rates.

Check your State Pension forecast

The State Pension is the backbone of your retirement income, with a full new State Pension currently worth just over £11,500 per year. However, many people don’t get this amount due to gaps in their National Insurance record after time spent out of the workforce.

You usually need 10 years’ worth of National Insurance credits to qualify for a State Pension and 35 years’ worth for the full amount. A State Pension forecast will show you how much you are on track to receive and highlight if you have any gaps. If you qualify for a benefit that comes with an automatic National Insurance credit - like Child Benefit -during one of these periods, then you may be able to backdate a claim.

If not, then you may be able to plug gaps through buying voluntary National Insurance Contributions. You can usually go back six tax years but if you are a man born after 6 April 1951 or a woman born after 6 April 1953 you may have the opportunity to plug gaps going back to 2006. You will need to move quickly though as the deadline to take advantage ends on April 6, 2025.

However, check with the Future Pension Centre before handing over any money to make sure you really will receive an uplift in your state pension by doing so. If you were contracted out at any point in your working life, then you will have paid less National Insurance which can have an impact on your state pension entitlement, and can’t be solved with top ups.

Plan your retirement lifestyle

There are some big decisions to be made around how you want to take your income at retirement. Depending on the age at which you retire, you may or may not be in receipt of the state pension. This can give you a gap that needs to be filled with your own savings and you need to make sure they can last. You’ve got several options - you can have the certainty of a guaranteed income for life that comes with an annuity, the flexibility of income drawdown or you can have a bit of both.

Annuities have been much maligned in the past for their perceived lack of flexibility and for offering poor value for money. However, they have surged in popularity this year with the latest data from Hargreaves Lansdown’s annuity search engine showing a 65-year-old with a £100,000 pension can get up to £7,235 per year for a single life, level annuity with a five-year guarantee. This compares to the just over £5,000 per year on offer three years ago.

However, once bought an annuity cannot be unwound so you need to consider your options carefully. If you have a partner, then you may want to consider a joint life annuity, so they continue to receive income after you die. You may also want to consider whether it’s right to opt for an annuity that rises with inflation each year. It is vital to use an annuity search engine to search the market to make sure you get the right shape of annuity for your needs.

Similarly with income drawdown, you need to consider your strategy carefully to make sure the amount of money you take out is sustainable long term. It can help to adopt a natural yield approach, whereby you only take the income generated by your investment returns. This means you aren’t eating into your capital. It’s a good idea to have a savings buffer of between 1-3 years of essential expenses in cash so you can supplement your income at times when markets are volatile.

You also don’t need to adopt an either/or approach to annuities and drawdown. You can use an annuity to secure your needs and leave the rest invested where it can grow. You can then annuitise in slices as you age, potentially securing higher annuity rates as you go.

Planning your days

Knowing how you want to spend your time in retirement is vital. The shift from working a full-time job to stopping completely is huge and might not suit everyone. Keeping your options open and thinking about activities such as volunteering, charity work, or even part-time work can play a huge part in a happy retirement.