While you may have many important financial goals that you’re working towards, you should never forget about your pension. Your pension is likely to be your lifeline once you stop working, and you need to have saved enough to support the lifestyle you want later in life.
As such, read on for 10 tips that could help you to boost your pension.
1. Carry forward your Annual Allowance
Your pension Annual Allowance is £40,000, or 100% of your net relevant earnings, whichever is lower. This means that you can contribute up to this amount each tax year while still benefiting from tax relief.
You can also “carry forward” any of your unused Annual Allowance from the previous three years. So, if you have a lump sum you’re looking to invest, using this “carry forward” could be a tax-efficient way to save for later life.
2. Contribute bonuses and unexpected income
If you receive a bonus at work, an inheritance, or other surprise income, consider contributing some of it towards your pension.
You will also benefit from tax relief on these additional payments provided you haven’t yet reached your Annual Allowance. This can essentially add an additional 20% or more to your contribution, depending on your Income Tax band.
However, remember that your pension cannot be accessed until you turn age 55 (57 from 2028), so any contributions you make will be locked away until retirement.
3. Contribute what you would have paid in loans
When you finish paying off a loan, consider turning most of what you would have paid each month into pension contributions.
If you weren’t missing the money and have no issues getting by each month, then using the money to help improve your quality of life in retirement could be a good option.
Again, remember that increasing your pension contributions will mean these funds are not available until you’re aged 55 (age 57 from 2028). So, it may not be appropriate if you’re saving for shorter-term goals.
4. Find out if your employer might match your increased contributions
If you decide to increase your pension contributions, ask your employer if they offer a “matching” scheme whereby they would match your increased contributions.
This could essentially double the boost your pension receives.
5. Claim higher- and additional-rate tax relief with your tax return
Basic-rate tax relief is calculated and added automatically when contributing towards most pensions. However, if you are a higher- or additional-rate taxpayer, you must claim your extra tax relief through a self-assessment tax return or by contacting HMRC.
You can claim back any tax relief for contributions made within the last four tax years, so make sure you to claim back any relief for the 2018/19 tax year before 5 April 2022.
6. Start as early as you can
Your pension pot benefits from compound returns, meaning that any returns that you get will also generate returns. What this means is that the earlier you start, the more you can benefit from compound returns, and the more your pension pot may be worth when you come to access it.
In simple terms, not only would someone who starts saving at age a25 likely need to save less each month than someone starting at age 40, but their pension would have 15 additional years to grow and generate returns.
7. Use a salary sacrifice scheme to avoid going up an Income Tax bracket
If your earnings are on the cusp of a higher Income Tax band, it could benefit you to take part of your salary as a pension contribution.
By sacrificing some of your salary for an additional pension contribution, it could save you from paying a higher rate of Income Tax on your earnings.
However, salary sacrifice also effectively reduces your salary. So, if you apply for a mortgage, for example, you might be able to borrow less. It may also have an impact on other benefits, such as a “death in service” payout (as this will typically be based on a multiple of your salary).
Before agreeing to salary sacrifice, contact a professional. We can help you fully understand both the benefits and downsides of this approach in reference to your personal circumstances.
8. Be open with your partner and plan together
Planning with your partner can help you more easily make decisions and manage expectations, as you can discuss your shared retirement goals and see what your pension pots are worth when combined.
You can also use all your individual tax allowances, making the most of the generous tax relief that pensions offer.
9. Re-evaluate your risk strategy
If you are approaching retirement and you believe you have “enough” to maintain the lifestyle you want in retirement, you could consider lowering the risk profile of your investments. Exposing your pension fund to less volatility could help you to protect the value of the fund you have built up.
Working with a financial planner can help. We can forecast what your pension savings will provide in the future to determine whether you have “enough” to retire. We can also help you to understand your options and establish how much risk you might want to take.
Always remember that the value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
10. Work with a financial planner
One effective way of bolstering your pension pot is to work with a financial planner. We can formulate a plan that will help you achieve your retirement goals by considering the lifestyle you want, the current size of your pension pot, and other personal circumstances.
We can use specialist tools to figure out how long your pension is likely to last and help you to effectively maximise your contributions.
For more information on how we can help boost your pension and ensure you experience the lifestyle you want in retirement, get in touch.
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