Wouldn’t it be nice to have more? More time, more fun, and to do more of the things we want? When it comes to your retirement having more in your pension pot could be the difference between just getting by and living life comfortably. And with a tweak here and there, increasing your pension pot size is easier than you might think.
8 top tips for increasing your retirement savings
Think twice before you opt-out of your workplace pension schemeIf you are aged 22 and over and earn more than £10,000 a year, you will be automatically enrolled into a workplace pension scheme. Between your own contributions, tax relief, and money added by your employer, your pension will be receiving a value equal to 8% of your salary each year. Opting out of your workplace pension scheme could cost you thousands of pounds. And doing so could leave you considerably worse off in retirement. And don’t forget, while a minimum contribution is set, both you and your employer could add more than this, which could considerably boost your pension.
Review your pension’s performanceIf you’re regularly making contributions into a pension, that’s great! Does that mean you should leave your pension to tick over? Certainly not. The truth is, high charges and poor performance could be eating away at your pension. And if you don’t review your pension regularly you will be none the wiser that this could be happening. A staggering 71% of pension holders in defined contribution schemes do not know what charges they are paying1. Yet, reducing your pension’s annual charge by just 1% a year now could mean over £27,000 more in your pot2. Likewise, improving your pension performance by 2% a year now could mean £54,000 more in your pot when you need it3. A regulated financial adviser, like Portafina, can check your pension for you to make sure everything is tip top and we can let you know whether you could be better off in another scheme. Click here to find out about our no obligation pension check.
Check you are entitled to the full State PensionWhile the State Pension alone is unlikely to provide you with a comfortable retirement, you should check to see that you are entitled to receive the full amount. You need to have paid 35 years of National Insurance contributions to qualify for the full amount. These don’t need to be consecutive years. However, if you’re missing any years in your contributions, known as gaps, this will affect the amount of State Pension you receive. Find out more about the State Pension here.
Find your lost pension potsIt’s possible that you may have more in savings than you think. If you have had multiple jobs in your career, then you may have many workplace pension schemes. Even though you are not contributing to them now, the savings you made before you left the job are rightfully yours. There’s a possibility that a lost pension might not be performing as well as it could and if it also has high charges attached, it could be losing value.
Ensure you are claiming the full tax relief you are allowedOne of the huge benefits of a pension is tax relief. For basic rate tax-payers, tax relief is claimed back from the government either by your employer or your pension provider, depending on the terms of your scheme. If you are a higher or additional rate tax payer, you may need to claim the extra 20% or 25% tax relief back from HMRC yourself, through self-assessment4. This is essentially free money, so it’s worth making sure you are receiving your full tax relief to help boost your retirement savings.
Pay in a little bit more, whenever you canWhether you are saving into a personal pension or workplace pension scheme, you could decide to give your fund boost. You have the option to make regular additional contributions that are comfortable for you. Or, you could make a one-off payment if you happen to come into some money. Topping up your contributions by £50 a month could mean you have £23,000 more in your pot when you need it5.
Carry your annual allowance overThe maximum that you can pay into your pension each tax year is called your ‘pension annual allowance’ and is currently set at £40,000. This amount includes your own and your employer’s contributions. If you go over your annual allowance you could incur a tax charge. To avoid any charges, you do have the option to carry over your annual allowance6 from up to three previous years, but only once all your current annual allowance has been used up.
Seek regulated financial adviceDid you know that those who seek pensions advice could have over £27,0007 more in their pot than those who don’t? We know pensions are complicated, and not particularly fun, and that’s even more reason to let someone who is qualified and regulated, like Portafina, make sure your future is shaping up nicely.
1FCA Data Bulletin, March 2018
2Based on a £50,000 sum at onset over 20 years, growing at 6% per year before charges of 0.5% and 1.5% are applied.
3Based on a £50,000 sum at onset over 20 years, growing at 4% vs 6% per year. Charges not applied.
4Gov.uk Tax on your private pension
5Based on a £50,000 sum at onset over 20 years, growing at 6% per year. Charges not applied.
6Gov.uk Can you carry over your annual allowance?
7The Value of Financial Advice – a research report from ILC-UK – July 2017