When you’ve got household bills to pay and plenty of other financial commitments to consider, boosting your pension pot may be the last thing on your mind.
After all, it can be enough of a challenge covering everyday living expenses, let alone thinking about ways to save more for your future.
However, there are a few simple ways you may be able to make your pension work harder this year which don’t necessarily involve saving more, but which should hopefully ultimately increase your retirement income.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
1. Check where your pension is invested
If you’re contributing to a workplace pension you’ll usually be invested in a ‘default fund’, unless you’ve chosen a different option. The default fund will typically automatically change the underlying investments as you approach retirement, moving your savings into less risky investments such as bonds and cash, with the aim of protecting the value of your pot from any sudden stock market falls. This is known as ‘lifestyling’ and you can read more about how it works in our guide What is pension lifestyling?
However, if you’ve got some time to go before you plan to retire, you may be comfortable taking a greater level of risk with your pot in the hope of generating higher potential rewards (although of course there are no guarantees). Besides, many people stay invested well into retirement these days, while drawing an income from their pension. Read more in our article Where is my pension invested?
If you’re contributing to a personal pension, it’s important to check that you’re happy with the investments your contributions are going into. You also want to ensure that you have a balance of holdings in your pension portfolio, so that you aren’t dependent solely on a particular stock market or asset class. Ideally, you’ll include a wide range of investments in your pension including UK, global and emerging market equities, bonds and cash, as well as alternative investments such as commodity and gold funds. Find out more about personal pensions in our articles What are the different types of pensions? and What is a SIPP?
It can be tricky to manage your investments during turbulent economic and political periods, when stock markets are usually volatile. However, remember that provided your investments are well-diversified, you’re probably best off staying invested and riding out any storms, so that hopefully you’ll benefit from any recovery. Find out more in our guide 9 tips for maximising your pension savings in difficult times.
2. Review your charges
Charges can build up over years and take a big chunk out of your pension pot, so it’s important to check that you’re not paying over the odds. This is particularly important if you’ve an older pension, or a workplace pension that you’re no longer paying into from years ago. You may find that you’re paying more than 1% in charges for an old pension, which may not sound a lot but will significantly eat into your retirement savings over time.
There are plenty of pension providers these days which charge low fees of, for example, just 0.15% a year. If you’re paying more than 0.75% in charges for your pension this is generally considered expensive and you may want to move your pot to another provider. Some charge a flat fee, rather than a percentage fee, and which is best will depend on the size of your pension. Generally, a flat fee is best suited to larger pensions, as your fee will remain the same no matter how large your pension grows. Find out more in our article What pension charges am I paying?
If you’re not sure how much you’re paying in charges, or whether you’d be better off moving to a different provider, you may want to seek professional financial advice. Check out our guide How to get advice on your pension.
3. Make the most of carry forward rules
If you have any used annual pension allowance from the previous three tax years, you may be able to use so-called ‘carry forward’ rules to boost the amount of money in your pot. This will make full use of the tax relief you receive from your pension contributions, which is a major benefit of pensions. Read more in our guide Pension carry forward explained.
Under current pension rules, you can pay a maximum of £60,000 each tax year into a pension, or 100% of your earnings, whichever is lower, and receive tax relief at your marginal rate on your contributions. This is known as your ‘Annual Allowance’. For every £100 you add to your pension, thanks to tax relief, you only pay £80 as a basic-rate taxpayer, £60 as a higher-rate taxpayer, or 55% as an additional rate taxpayer. Find out more about tax relief in our article How pension tax relief works.
If you have any unused Annual Allowances from up to three previous tax years, you can carry them forward and use them in the current tax year if you want to.
It is important to remember, however, that you cannot receive tax relief on contributions in excess of your earnings in any tax year, even using the pension carry forward rule. For example, if you earn £70,000 in a tax year, you can only contribute up to £70,000 to your pension that year, including any carried forward allowance.
4. Maximise employer pension contributions
If you’re contributing to a workplace pension, employer contributions can make a big difference to your pot. Under the government’s auto-enrolment rules, both you and your employer should make a total minimum 8% monthly pension contribution if you’re earning over £10,000 a year. Find out more in our guide How does pension auto-enrolment work?
Your employer cannot pay in less than 3% to your pot, but they may pay significantly more than this percentage. Some will may as much as 8%, so it’s worth checking your scheme’s rules, and that you’re making the most of these. As mentioned, the tax relief you’ll receive on both your and your employer’s contributions is generally and worth making the most of, as it’ll give your pension an immediate boost.
5. Set up salary sacrifice
Your employer may have a salary sacrifice arrangement that can be used to boost your pension. Under this scheme, you agree to receive a reduced salary in return for the money to be paid into your pension, along with your employer’s contribution. The amount of National Insurance that both you and your employer pays also falls as your salary is reduced. You’ll also benefit from paying less tax on a reduced salary.
However, making use of a salary sacrifice arrangement won’t be right for everyone. Whether it’s suitable or not for you will depend on a number of factors, including how much you earn. Beware, too, that using salary sacrifice could impact on your entitlement to certain benefits such as statutory sick pay. Find out more in our article What is salary sacrifice?
6. Track down lost pensions
Billions of pounds is sitting in forgotten pension pots waiting to be claimed, with the average pot size at £9,000, according to the Pensions Policy Institute (PPI). It can be easy to lose track of previous pensions if you’ve worked for several different employers over the years, with the Department for Work and Pensions claiming that the average person works for 11 different employers during their career.
Tracking down missing pensions could boost your retirement savings, so if you think you know which pension provider you might have an old pension with, call their customer service number (you can usually find this online) and see if you can get your details.
If you cannot remember which provider you were with, or the scheme your employer used, you could start by contacting your former employer. You’ll probably need your National Insurance number, name and address to find your old pensions. If you cannot track down an old pension you can use the government’s Pension Tracing Service (0800 731 0193). You’ll need the name of an employer or pension provider to use the service, and it should be able to help you find contact details. However, the service won’t be able to tell you whether you have a pension, or its current value. Find out more in our guide How to find old pensions and trace lost pensions.
If you’re not sure what to do with your pensions, or are struggling to track them down, it may be helpful to speak to a regulated financial advisor who can help you understand your options and make the best decision for your personal circumstances.
You can find a local financial advisor on VouchedFor or Unbiased, or for more information, check out our guide on How to find the right financial advisor for you.
If you’re thinking about getting independent financial advice, financial services company Fidelius is offering Rest Less members a free initial consultation with an independent financial advisor to chat about your finances, where you are now, and where you want to go.
There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Fidelius is rated 4.7/5 from over 1,250 reviews on VouchedFor, the review site for financial advisors.
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