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 to meet soaring food and energy bills amid the cost of living crisis, 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 which don’t necessarily involve saving more, but which should hopefully ultimately increase your retirement income.
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. A default fund will automatically change the underlying investments as you approach retirement. You’ll be moved into less risky investments such as bonds and cash as you near retirement, with the aim of protecting the value of your pot from any sudden stock market falls. However, if you’ve got some time to go before retirement, you may be comfortable taking greater risk with your pot. 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 comfortable with your investments. You also want to ensure that you have a balance of holdings in your pension portfolio, so that your returns aren’t relying on a particular stock market or investment. Ideally, you’ll include a range of investments in your pension including UK, global and emerging markets, and alternatives 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 times, when there are volatile stock market periods. However, remember that provided your investments are well-diversified, you’re probably best off staying in the market and riding out any storms. Find out more in our guide 9 tips for maximising your pension savings in difficult times.. You can also often choose from ready-made fund portfolio options from online investment platforms such as Nutmeg.com and Wealthify.com, which may be a simple way to get started. Before you sign up, make sure you are comfortable with the charges you’ll pay, and overall investment choice on offer from your provider.
2. Check 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 reduce your retirement pot.
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 should seek professional financial advice. Check out our guide How to get advice on your pension.
If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. 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.
3. Make the most of carry forward
If you have any used annual pension allowance from the previous three tax years, you may be able to use so-called ‘carry forward’ 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, you only pay £80 as a basic-rate taxpayer, £60 as a higher-rate taxpayer, or 55% as an additional rate taxpayer. Read more in our guide How pension tax relief works.
You can continue to receive tax relief on your pension contributions right up until you reach age 75. However, once you’ve started taking money out of your defined contribution pension, which you can usually do from age 55 onwards, your Annual Allowance falls from £60,000 a year, or 100% of your annual earnings, to £10,000. This is known as the Money Purchase Annual Allowance (MPAA). Find out more in our articles How do pension allowances work? and What is the Money Purchase Annual 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 employee 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 employer’s scheme 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 right or not 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). After all, it can be easy to lose track of previous pensions if you’ve worked for several different employers over the years.
Tracking down missing pensions could boost your retirement savings. If you know which pension provider an old pension is with, call their customer service number and see if you can get your details. You might be able to find some old paperwork with the provider’s name and your account details on.
If you cannot remember which provider you were with, or 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.co.uk, or for more information, check out our guides on How to find the right financial advisor for you or How to get advice on your pension.
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