Why retirement is more than just a pension

Pensions and retirement
Views & insights

If your pension isn’t big enough to fund your retirement, using ISAs and other savings could help you achieve your ambitions.


17 April 2023 | 3 minute read

If you’re worried you haven’t saved up a big enough pension pot to meet your retirement aspirations, don’t panic.

Although pensions and retirement go hand in hand, your income in retirement can come from several different sources. Used together, these could help you achieve the retirement you desire, while minimising the amount of tax you pay.


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Before you get started, here are some questions to ask yourself.

How much retirement income do I need?

The first step is to determine how much income you’re likely to need in retirement. According to the Pensions and Lifetime Savings Association, a single person would need £37,300 a year to fund a comfortable retirement, and a couple would need £54,500 a year1.

Bear in mind that these are average figures. The actual amount you’ll need will depend on what you intend to do in retirement. For example, travelling the world would cost far more than gardening or learning to cook. You could also find that your income needs fluctuate throughout retirement – perhaps starting off slightly higher as you enjoy your newfound freedom, reducing as you get older, and potentially rising again later on to pay for long-term care.

A financial adviser can help you calculate how much income you’re likely to need to fulfil your aspirations. They can also advise on what size of retirement pot would produce your desired income level.

How big is my pension?

It might sound obvious, but you also need to know how much money you have in your pension. This isn’t always straightforward, as you may have held multiple jobs throughout your career and accumulated several different workplace pension schemes. You might also have personal pensions, such as a self-invested personal pension.

A financial adviser can help you establish the total value of all your pensions and advise on whether you should consider consolidating them into one pot.

Don’t forget the state pension – the full level is currently £203.85 a week for those who reached state pension age on or after 6 April 20162. The actual amount you’re entitled to will depend on your National Insurance record and whether you’ve decided to defer taking payments.

Do I have other savings and investments?

Income in retirement can come from multiple different sources, including cash savings accounts, shares, ISAs, and property. This is why it’s important to consider all your assets when deciding whether you have enough money to fund your retirement.

ISAs can be a tax-efficient way of funding retirement because you don’t pay income tax on withdrawals. With a pension, you get tax relief on contributions, while any income you draw above your 25% tax-free lump sum (capped at £268,275) is taxed at your marginal rate of income tax.

What’s more, ISAs form part of your estate when calculating inheritance tax (IHT), whereas pensions usually fall outside of your estate and so can be passed on to your beneficiaries free of IHT. It may prove more tax efficient to use ISAs before pensions in retirement.

Do I plan to work part-time?

It’s also worth bearing in mind that retirement is no longer the cliff-edge it once was. Many retirees choose to take a ‘phased’ retirement, where they gradually reduce their hours by working part-time or on a consultancy basis. For some, it’s a way of maintaining the social interaction and mental stimulation that work offers, while supplementing their retirement income or delaying the point at which they need to access their pension. After all, the longer you leave your pension money untouched, the more opportunity it has to grow in value.

Next steps

Working out how much money you need in retirement, and deciding where to draw an income from, isn’t straightforward and that’s where getting some smart advice can help. A financial adviser will consider all your savings and investments, and create a solid financial plan that suits your needs and circumstances. They can help you enjoy life today without worrying about running out of money later.

2 https://www.gov.uk/new-state-pension/what-youll-get

The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

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