Securing a comfortable retirement requires strategic planning and proactive measures. Here are ten actionable tips to help boost your pension savings:
1. Maximise Employer Contributions
Many employers offer a pension scheme with matching contributions. Ensure you are taking full advantage of this benefit by contributing the maximum amount that your employer will match. This effectively doubles your pension contribution at no additional cost to you.
2. Increase Personal Contributions
Regularly review your budget and increase your personal pension contributions whenever possible. Even small increases can significantly impact your pension pot over time due to the power of compound interest. Aim to increase contributions annually or whenever you receive a pay rise.
3. Diversify Your Investments
A diversified investment portfolio helps balance risk and reward, crucial for long-term pension growth. Consider spreading your investments across various asset classes, such as stocks, bonds, and property. Consult with a financial planner to tailor your investment strategy to your risk tolerance and retirement goals.
4. Utilise Tax Relief – annual and unused pension allowances
Pension contributions often come with tax relief, which can significantly enhance your savings. For example, in the UK, contributions to a pension scheme attract tax relief at your marginal rate. Ensure you are making the most of these tax advantages by contributing up to the annual allowance.
If you didn’t start saving into your pension from an early age, you can look to make the most of the annual pension allowances and contribute up to £60,000 into a pension each year. Previously the annual allowance was £40,000.
As pension tax reliefs are so generous, there are rules that prevent high earners from putting too much into a pension so the allowance is reduced if ‘adjusted’ income is over £260,000. These limits have changed over time and are quite complicated. Furthermore, your pension contribution allowance may be cut to £10,000 if you have already taken money from your pension. This is also complicated.
In addition to making the most of your current annual allowance, generally speaking, you can use unused allowances from the previous three years. By making the most of unused allowances you can potentially contribute a lot more to your pension in any given year. The only caveat to this is that you must have had a pension in place already, even if you put the new contributions into a different pension.
5. Keep track of your pensions and if not use the pension tracing service
Gone are the days of a job for life. People move about and end up with multiple pensions. The pension tracing service helps reunite people with their pensions. For more information visit the Pension Tracing Service website.
Once you have identified what you have got and what they are worth, you may need help looking at these pensions more carefully. Are they invested with a clear strategy in mind? Are the investments performing well? Do you think the risk levels are suitable for you right now? Are your pensions cost-effective for what they are delivering and do they provide useful features like flexi-access drawdown? If they are then great, but if they are not then we can help analyse your pensions and potentially consolidate them into a single larger pension pot completely aligned with your preferences, goals and with the right product features to give you the flexibility you need. In summary, helping you sleep easy and look forward to retirement.
6. Maximise Your State Pension
The state pension is a vital component of retirement income. Check your National Insurance (NI) record to ensure you have made sufficient contributions to qualify for the full state pension. If you have gaps in your NI record, consider paying voluntary contributions to fill them. Additionally, grandparents who provide childcare for their grandchildren under the age of 12 can claim Specified Adult Childcare credits, which count towards their state pension – more information can be found on gov.uk.
7. Consolidate your pensions
If this has whetted your appetite or if you simply feel things are a bit out of control or disorganised you could decide to bring it all together into a single pension pot. Consolidating your pensions can offer several advantages that may help boost your retirement fund, advantages include:
- Simplicity: one value and one target. Online access and quick and easy to know what you’ve got and how it’s doing
- Improved investment strategy: re-assess your objectives, and have all your pension money pulling in the same direction with a defined strategy.
- De-risk: ensure you are not taking too much risk by evaluating your options with the help of an expert
- Control costs: reduce costs of expensive pensions by ensuring you are getting value for money. As we’ve seen from the example of compounding returns, 0.2% or 0.5% can make a big difference over a long period of time
- Get advice: while it’s great to have good-performing pensions, knowing when to access them and how to access them can save significant amounts of tax.
- * Easier Estate Planning: when your pension savings are consolidated, estate planning becomes more straightforward. Beneficiary designations and inheritance arrangements can be managed more efficiently when there's a single, consolidated pension fund.
8. Delay Your Retirement
Working a few extra years can significantly boost your pension pot. Delaying retirement not only allows you to contribute more but also reduces the number of years you will rely on your savings. Furthermore, deferring your state pension can result in higher payments when you eventually start claiming it.
9. Review your pension(s) regularly
A well-balanced pension will be invested in a variety of asset classes across the world so that you are not over-exposed to economic risks including natural disasters. Moreover, a well-managed pension fund will be positioned to take advantage of possible upsides. That could be regions or industry sectors which can be expected to perform well but can also take into account your personal preferences such as not investing in environmentally unsustainable industries.
Naturally, some investments do better than others and over time become a larger percentage of your wealth. While it’s great that your investments have increased in value, this can also be a problem as over a long period of time, you may begin to have too many eggs in one basket. A regular financial review with an independent financial planner can help guard against this problem and ensure you are on track to reach your retirement goals.
10. Seek Professional Advice
Navigating pension plans and investments can be complex. Consulting a financial planner can provide personalised strategies tailored to your specific situation and goals. Financial Planners can help you optimise your contributions, investments, and tax reliefs, ensuring you make the most of your pension savings.
A good financial planner can also run a cash flow forecast on your pension to show you what you can expect to receive and how it will last in retirement to give you an understanding of the lifestyle you can expect when you retire. It can flag up potential problems, e.g. you may need to increase pension contributions or work an extra year or two. Better to know and take action than bury your head in the sand and get a nasty shock later. At Financial Planning by TaxAssist we use specialist cashflow modelling software to give our clients a complete financial plan forecasting 30+ years into the future. If you think this will benefit you, do let us know.
By implementing these ten tips, you can enhance your pension savings and work towards a more secure and comfortable retirement. Regularly review your pension strategy and adjust as needed to stay on track with your retirement goals.
Help is at hand
Financial Planning by TaxAssist is here to support you achieve the retirement you want no matter your age or when you started saving. Speak with one of our experienced independent financial planners by calling 0330 441 2244 or emailing [email protected].
*Estate Planning is not regulated by the Financial Conduct Authority.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.