You’ll have many years ahead of you once work finishes. So, it’s important to take time now to consider how you’re going to invest your pension savings, to help you enjoy the kind of retirement you’ve been looking forward to.

If investing is new to you, it's worth remembering that your pension has been invested since you and/or your employer first made a contribution. During that time the value of your pension will have fluctuated according to market conditions, and the value of your pension and the income you get from it will continue to go up and down for as long as you stay invested. This isn't something to fear and is a normal part of investing, but it is important to understand what it means in retirement.

Below, we’ve put together some of the key questions about investments, inflation and planning for the retirement you want.

Think about getting advice

Converting your pension savings into a retirement income could be one of the biggest financial decisions you ever make. It’s really important that you understand all the options available to you and how they could affect your income in the future. If you are in any way unsure what would be best for your personal circumstances, you should consider regulated financial advice.

An authorised financial adviser could save you money in the long term and give you peace of mind about critical decisions in retirement. You can find an adviser through the Money Advice Service’s directory or unbiased.co.uk.

What sort of retirement do you want?

Life in retirement looks different for everybody. The first thing to work out is how much money you’ll need for the lifestyle you want.

To help, we’ve created a range of easy-to-use tools and calculators. Our Retirement Budgeting Calculator looks at your income and expenses and gives you an idea of whether your desired lifestyle is within reach.

How long should you plan for?

Generally, we are living a lot longer than previous generations and this gives us the benefit of having more time to enjoy our retirement years. Today, the average 65-year-old man can look forward to 19 years ahead of him, while women have longer still, at 21 years1.

Of course, many live far longer than the average. For that reason, it makes sense to plan for a minimum of 25 years. Knowing your planning period is important when it comes to making sure your retirement savings last.

Office for National Statistics, National Life Tables 2017-2019.

How does inflation affect your pension pot?

It’s also important to factor in the impact of inflation (the rising price of goods and services)  on the value of your savings during your retirement years. As an example, if inflation averages 2% a year, a car that costs £25,000 today would cost you more than £40,000 in 25 years’ time.

The following graph shows that with inflation at 3% or 4%, the effect is even more pronounced. In practice, this means you will probably have to increase the amount you withdraw from your pension each year.

What if you make withdrawals from your pension pot?

If you make one-off or more regular withdrawals from your pension pot, its value will go down. For this reason, it’s important to think carefully about how much you withdraw.

Our Retirement Savings Guidelines show that a potentially sustainable withdrawal rate is between 4% and 5% of your pension savings in the first year of your retirement. You then adjust the amount every year after that for inflation.

It’s important to remember that this is a rule of thumb and everyone’s circumstances are different. For example, you might want to withdraw more in the early years to spend on home improvements or travel. You would then need to withdraw less in the later years.

You can't normally access your money before the age of 55. There are different tax implications of withdrawing money from your pension depending on your personal circumstances; you can read our guide explaining how pension withdrawals are taxed. All tax rules may change in the future.

What should you think about when choosing investments in retirement?

To keep your investments growing, and help combat the effects of inflation and withdrawals, we provide you with a wide range of funds to choose from.

Each fund has its own factsheet, where you’ll find details of the investments it holds, the level of growth it aims for and its level of risk. Typically, funds that aim for higher growth may carry more risk and be more suitable for those investing for the longer term. In contrast, funds with lower levels of risk may achieve less growth.

Your age, attitude to risk, planned retirement age and overall financial situation are all factors to consider when choosing how to invest. If you’re not sure which funds are right for you, a financial adviser will be able to help.

What if you don’t want to choose the funds yourself?

A simpler option might be to choose one (or more) of our Investment Pathways. These may be available to you through your Pension Drawdown Account once you have started withdrawing money from your retirement savings. They are designed around four different objectives you might have for your retirement income over the next five years:

  • Investment Pathway 1 – I have no plans to touch my money in the next five years
  • Investment Pathway 2 – I plan to use my money to set up a guaranteed income (annuity) within the next five years
  • Investment Pathway 3 – I plan to start taking my money as a long-term income within the next five years
  • Investment Pathway 4 – I plan to take out all my money within the next five years

Find out more about Investment Pathways.

If you’d like to make any changes to your investments, simply log in to PlanViewer.

Remember, it’s a good idea to review your investments on a regular basis, to check that they are still right for your plans.

Do you need help deciding which investment would be best for you?

None of the information above is a personal recommendation for any particular investment. If you are unsure whether an investment is suitable for you, you should speak to an authorised financial adviser. To find the right adviser for you, visit the Money Advice Service Retirement Adviser Directory or unbiased.co.uk.

Ready to chat?

Workplace Investing Service Centre

If you’re ready to discuss what options might be available to you in your Plan please call the Workplace Investing Service Centre.

0800 3 68 68 68

Pension Wise

The government's Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.pensionwise.gov.uk or over the telephone.

0800 138 3944