No pension pot? Here’s how you can (still) retire in style

Failing to save enough for retirement is an ongoing worry for millions of people who aren’t sure whether they have the means for a comfortable future. 

Nearly a quarter of those aged 40 to 75 do not have a private pension, according to Department for Work and Pensions (DWP) data.

Of the 2,655 40 to 75-year-olds included in its survey, 16pc had not yet started saving for retirement at all.

In a separate study, the Association of British Insurers (ABI) claims that a quarter of people with pension savings who are approaching retirement are unlikely to receive enough income to pay for a minimum standard of living, and nearly half will fail to meet a personally acceptable level of income in retirement.

This is despite the improvements made by auto-enrolment, where eligible employees are automatically entered into a workplace pension scheme.

Meanwhile, 45pc of the 4.4m self-employed workers are not saving into a pension, according to data from The Association of Independent Professionals and the Self-Employed (IPSE).

Here, Telegraph Money explains what your options are if you have no pension, sharing tips on other ways to fund your retirement.

Is it too late to start saving?

If you’re nearing retirement and haven’t started saving for your pension, or have very little in the pot, you might be tempted to think it’s too late to bother saving now. 

However, anything is better than nothing – and you might find you can accrue a decent amount of savings in a relatively short space of time. 

Laura Suter, head of personal finance at AJ Bell, said: “Clearly, the more money you can spare to pay in, the bigger your final pension pot will be. It’s worth tackling your pension savings, getting started as soon as possible and paying in as much as possible – your future self will thank you.”

Say you decided to get serious about pension saving at the age of 50, you could have 15 or 20 years until you retire, which is a decent period to save and benefit from compounding on your returns.

One of the main plus points of saving into a pension is the tax relief you receive on your contributions. When you save for your pension, the Government pays an extra 20pc of your deposits as tax relief. 

Higher and additional-rate taxpayers can also claim extra relief on the difference between the 20pc government boost and the rate of tax they pay (40pc or 45pc) via a self-assessment tax return. 

You can pay up to £60,000 into your pension pot each year, or up to a limit of 100pc of your earnings – whichever is lower. This includes contributions to your pension from yourself, your employer and pension tax relief. 

Ms Suter added: “To put the annual allowance of £60,000 into your pension you’d need to make a pension contribution of £48,000, which then gets topped up to £60,000 by pension tax relief, assuming there is no employer contribution.”

AJ Bell calculations show that someone who started with nothing at the age of 50, but put the annual pension limit of £60,000 away each year would have a pot worth £1.5m at the age of 66, when they reach the current state pension age.

Ms Suter said with that size of pot you could buy a basic single-life, non-escalating annuity that would pay an income of £115,000 a year – although any additional features, such as inflation protection, would cost more. 

By delaying retirement, keeping the money invested and continuing to contribute £60,000 until the age of 70, your pot could be worth £2m.

Of course, contributing £60,000 a year is out of reach for a lot of people. Even putting away a smaller amount of £32,000 a year would amass almost £1m by age 66, and £1.3m by the age of 70. 

Thanks to the tax relief on contributions, your savings would be increased to £40,000 a year, which would compound over that time.

If you’re employed and qualify for auto-enrolment, any contributions from your employer will either reduce the cost to you if you’re already paying in the maximum, or increase your ultimate pot size.

You could also consider making lump sum contributions if you get a windfall – a bonus at work or some inheritance, for example.

It’s also worth remembering that pensions offer a unique feature called “carry forward”. This rule allows you to make use of any unused pension allowance from the previous three years, as long as you were a member of a pension scheme during that period. 

However, the usual contribution thresholds still apply, so you won’t be able to save more than you earn, or more than £60,000. 

Should you bank on property?

Many people prefer to rely on bricks and mortar as their pension. 

If you chose to invest in property rather than a pension, you wouldn’t be held back by annual savings limits, and you’re able to free up cash by selling the asset whenever you need to. 

What’s more, if your other investments are hit by a sudden market shock, rental income can be an important fallback. Average rental yields are attractive today, and the rental market is strong. 

The average yield on a new purchase stands at 6.8pc, up half a percentage point on last year according to estate agent Hamptons.

David Fell, lead analyst of Hamptons, said: “The large recent rises in rent this year have played a big role in boosting gross yields and investor returns, on paper at least. Most regions are recording their highest yields on record, since at least 2015. 

“That said, today’s high interest rates will bear down on the net yield of most investors with a mortgage. 

“The impact of higher rates on price growth and their inflationary effect on rental growth will likely see gross yields continue rising in the short-term for new investors, but this won’t always translate into a more profitable bottom line for landlords.”

There are plenty of headwinds for landlords today with fewer tax perks, rising mortgage rates and incoming rules to make properties more energy efficient, making buy-to-let an increasingly unappealing proposition.

Malcolm Steel, at the independent advice firm Mearns & Company, said: “Ignoring saving in a pension isn’t a wise move, as you’ll be missing out on the valuable tax breaks on contributions. 

“But you don’t need to choose between investment vehicles. A robust strategy would be to draw an income from diversified sources including pensions, Isas and cash savings. That might also include income from investment property.

“One consideration on owning buy-to-let ventures in retirement is that being a landlord comes with plenty of responsibility. When you’re in your much later years you might not want to deal with calls from tenants about a boiler on the blink, the need to find new tenants or new regulations.”

Tips on how you can still retire comfortably

1. It’s never too late to start pension saving

Thanks to the tax breaks, it still makes sense to save in a pension, even much later in life. As soon as you invest your money is topped up by the taxman at the 20pc basic tax rate. For higher-rate and additional-rate taxpayers there’s even more tax relief up for grabs.

2. Make the most of the carry forward rule

Pensions offer the unique benefit of being able to backdate unused allowances for up to three years. The annual allowance is £60,000, which means you could see up to £180,000 added to your pension in just one tax year (as long as this amount doesn’t exceed your salary).

3. Put off retirement for a few years

It can be beneficial to continue earning as long as you can, even if you go part-time. 

Not only can you continue contributing to your pension, it can also put you in a better position to defer your state pension or hold off taking your pension savings – both of which can boost your income when you do come to retire.

4. Defer your state pension

If you put off receiving your state pension beyond state pension age, you could boost your payments. 

Every year that a pensioner delays their retirement will earn them around 5.8pc extra in their final state pension pot, which works out to around £10.70 per week extra for someone claiming the full new state pension. 

However, for this to work out in the long run, you may have to bet on living longer – our full guide on deferring state pension payments can tell you more about how this works.

5. Diversify your income streams

Advisers recommend having a spread of income streams in retirement. 

That means using cash savings, pensions, property and any other investments, which can help prevent you running out of money, and protect you from things like market shocks and house price crashes.