A reader is concerned they won’t have enough in their pension to pay for care costs

In our weekly series, readers can email in with any question about retirement and pension savings to be answered by our expert, Tom Selby, director of public policy at investment platform AJ Bell. There is nothing he does not know about pensions. If you have a question for him, email us at money@theipaper.com.

Question: I’m worried about the cost of care in retirement. What can I do now to put me in a better position to pay for care when it comes to that? I have a workplace pension, should I also open a self-invested personal pension (SIPP) too?

Answer: Knowing exactly how much you will need to spend in retirement – and therefore the size of the pension pot you might need to support your lifestyle – is incredibly tricky to figure out.

You are having to make a best guess of when you might retire, how much (including investment growth) your pension will be worth, what your fixed costs will be and the kind of things you’ll want to spend your money on outside of those fixed costs.

Pensions UK, an industry trade body, produces annual ‘Retirement Living Standards’ designed to give you an idea of how much your retirement could cost.

These suggest a ‘minimum’ retirement living standard would cost a single person £13,400 a year, a ‘moderate’ living standard £31,700 a year and a ‘comfortable’ living standard £43,900 a year. These numbers do not include housing costs (so assume your mortgage has been paid off) or any potential care costs, however.

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Because you don’t know whether you’ll need to be paying for care, it is very difficult to plan for. Around half of people aged 65 will need to pay for some form of care in their remaining lives, according to the Institute for Fiscal Studies.

However, the cost of that care will vary depending on how long they can expect to live, the severity of any condition they have and whether that care can be undertaken from their home or requires them to enter a care home.

If you want to plan for the possibility you will need to pay for care in later life, topping up your pension contributions (if you can afford to) can be a good way to do it.

As a reminder, pension contributions benefit from automatic basic-rate pension tax relief, meaning an £80 contribution is boosted to £100 within your retirement pot.

If you are a higher or additional-rate taxpayer, you can claim extra tax relief from HMRC. The maximum total pension contributions someone can make in a tax year – inclusive of employer contributions, personal contributions and tax relief – is £60,000.

In addition, you can only make personal contributions worth 100 per cent of your earnings during the tax year to a pension – so someone with earnings of £30,000 could only contribute £30,000 (including tax relief) to a pension in 2025-26.

You can access your pension from age 55 (rising to age 57 in 2028), with up to a quarter of your pot available tax free and the rest taxed in the same way as income.

If you choose to increase your pension contributions, you can do so either through your existing workplace pension scheme or by opening a SIPP.

Both benefit from exactly the same tax relief and tax free investment growth, although if you are considering the latter make sure you’ve maximised any matched employer contributions first.

In England, if you have assets worth more than £23,250, you have to pay the full cost of your care. There are products available which can help you pay for care although the market is limited at the moment.

These include ‘immediate needs annuities’ (where you buy a guaranteed income for life that is paid tax-free directly to your care home) or equity release (where you release value in your home to help fund your care costs).

This can be an extremely complex area of financial planning, however, so getting independent advice is essential.