When you’re meeting the demands of everyday life, from juggling household bills to managing family responsibilities, thinking about your pension can easily take a backseat.
However, there are several strategies that could potentially supercharge your retirement savings without you having to put much effort in. Making the most of pension rules, tax relief, and employer schemes, for example, could all help you to substantially boost your pension pot.
Here, we look at some of the steps you might be able to take to bolster your pension and hopefully enjoy a more financially secure and comfortable retirement.
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. Take advantage of carry forward rules
If you have savings available, you may be able to contribute more into your pension by carrying forward unused allowances from the three previous tax years, known as ‘carry forward’.
For most people, the pension ‘Annual Allowance’, which is the maximum you can contribute to your pension each year while still receiving tax relief, is currently set at £60,000 or 100% of earnings in the current 2024/25 tax year that finishes on April 5, 2025, whichever is lower. Prior to the 2023/24 tax year, the Annual Allowance stood at £40,000 or 100% of earnings.
When you contribute to a pension, you receive tax relief at your highest marginal rate. So for every £100 paid in by a basic-rate taxpayer, it only costs £80 from their take-home pay. Higher and additional rate taxpayers benefit from even more relief, which they can reclaim via their self-assessment tax returns. Read more in our guides How pension tax relief works and How do pension allowances work?
If, for example, you only used £20,000 of your Annual Allowance in the previous three tax years (bearing in mind the annual allowance was £40,000 rather than £60,000 prior to the 2023/24 tax year), the maximum you could contribute this tax year using carry forward rules would be as follows:
+ £60,000 (full Annual Allowance in the 2024/25 tax year)
+ £40,000 (unused allowance from 2023/24)
+ £20,000 (unused allowance from 2022/23)
+ £20,000 (unused allowance from 2021/22)
= £140,000 total
So with the £60,000 Annual Allowance for 2024/25, combined with carrying forward unused allowances from the three previous tax years, you could potentially contribute up to £140,000 to your pension in the 2024/25 tax year using carry forward. Find out more in our guide Pension carry forward explained.
It’s important to note that you can continue receiving tax relief on pension contributions until age 75. However, once you start taking taxable income from your defined contribution pension, your Annual Allowance falls from £60,000 to just £10,000 and becomes known as the Money Purchase Annual Allowance (MPAA). Find out more in our guide What is the Money Purchase Annual Allowance?
If you have a small pension you may be able to cash it in without this affecting how much you can save into another pension and receive tax relief on. You can learn more about this in our article Cashing in small pensions: what you need to know.
Making the most of carry forward can be an excellent way to turbocharge your pension, especially if you’ve received an inheritance, bonus, or other lump sum windfall you want to put towards your retirement fund. However, it’s a good idea to seek professional advice if you’re unsure about your particular allowances and tax position. You should also make sure that you keep some savings readily accessible as a rainy day fund, as you won’t be able to access your pension savings until the age of 55 at the earliest (rising to 57 in 2028).
Find out more in our guide Pension carry forward explained.
2. Boost your pension with pay rises and other income
Even if you don’t have large lump sums available, you could supercharge your pension savings by committing to contributing any pay rises, bonuses, or other income increases you receive to your pension pot.
When your salary increases, for example, you could think about automatically bumping up your pension contribution rate by at least the same percentage. For example, if you get a 3% pay rise, consider increasing your pension payments by 3% or more. This would mean you’re saving more for retirement without it impacting your current monthly budget. You could decide to pay a slightly higher percentage into your pension if you can afford to. If you receive a 3% pay rise, say, increase your pension contributions by 4% or 5%.
Whenever your household income increases from any source, consider putting some of that extra money towards your pension. This could be money from a side business or renting out a room in your home, for example. Even contributing small additional amounts each month can make a difference to your eventual retirement pot, because of the effect of your returns generating more returns (known as compounding). The longer the money remains invested into retirement, the greater the impact on your pension pot.
While not everyone can afford large pension top-ups, making occasional contributions when you have some spare cash available ensures that your money is working harder over the years through the power of compounding.
Don’t forget the value of employer contributions. If you’ve been auto-enrolled into your employer’s workplace pension scheme, the minimum contribution is 8% of ‘qualifying earnings’. Of that 8%, your employer can’t contribute less than 3%, but many employers match employee contributions up to 8% or higher. Check your scheme rules, as you could be missing out on substantial ‘free’ money by not making the most of your employer contributions. Read more in our guide How does pension auto-enrolment work?
3. Set up salary sacrifice
If your employer offers a salary sacrifice scheme, this could be an extremely effective way to boost your contributions in a tax-efficient manner. With salary sacrifice, you agree to swap a portion of your pre-tax salary in exchange for your employer paying that amount directly into your pension. Read more about how this works in our guide What is salary sacrifice?
Let’s say you choose to go for a 5% salary sacrifice scheme. Your taxable income would reduce by 5%, but crucially your employer would then pay that 5% into your pension on top of their normal contribution, rather than towards your salary. This allows you to benefit from full tax relief on the sacrificed amount at your highest marginal rate of income tax.
Higher rate taxpayers can significantly benefit from a salary sacrifice arrangement. For example, let’s take David, a higher rate taxpayer earning £80,000 per year, who wants to contribute a £10,000 lump sum from his salary to his pension. Without salary sacrifice, he’d face higher rate tax at 40% on the contribution, leaving him with just £6,000 to pay into his pension. He’d also pay National Insurance contributions (NICs) on his salary. By sacrificing £10,000 from his gross salary, the money is deducted before tax and NICs. This saves him £4,000 in income tax and reduces the amount he pays in NICs. This shows how salary sacrifice can be an enormously powerful way for higher and additional rate taxpayers in particular to boost their retirement savings.
However, using salary sacrifice affects the amount you receive in income, so it won’t be suitable for everyone, and it’s important to carefully consider the full implications. It may also affect other benefits you have like workplace life insurance, as your entitlement will be lower because the figure is worked out as a multiple of your annual salary.
4. Review your investment strategy
How your pension fund is invested plays a huge role in how quickly it can grow over time. Making sure your investments match your risk tolerance and investment timeframe could make a significant difference to your eventual retirement income.
If you still have 10-20 years to go until retirement, for example, and provided you’re comfortable accepting the risks involved, you may decide you want a higher weighting in stocks and shares in the hope of greater potential growth over that extended period.
As you approach retirement age, it’s typically assumed that reducing risk by increasing the amount you hold fixed income and cash allocations is the best strategy. However, with many of us choosing to leave our pension savings invested in retirement so we can take an income from them via drawdown, this might not be the best option. This is because over long-term periods, shares tend to perform better than cash and gilts, although of course there are no guarantees. Find out more in our articles Where is my pension invested? and Your retirement countdown: A five year plan.
Don’t simply opt for your workplace pension provider’s default investment fund. Take the time to get to grips with and understand your investment options. If there are a number of choices available, consider which may be most suitable for you and your attitude to risk. This could potentially make a huge difference to your retirement savings. If you’re unsure of your attitude to risk, read our article What’s your attitude to risk?
If you’re contributing to a personal pension, you want to ensure that you have a balance of holdings in your pension portfolio, but also that you’re taking enough risk to potentially boost returns. Ideally, you’ll include UK, global and emerging markets, and alternatives such as commodity and gold funds. Find out more about personal pensions in our article What are the different types of pensions?
5. Track down old pensions
Many of us change jobs and careers multiple times over our working lives, and may move home several times too. This makes it easy to lose track of old workplace pensions from previous employers, especially smaller pots built up many years ago.
However, these ‘lost’ or forgotten pensions can often add up to a tidy sum that shouldn’t be overlooked as part of your retirement planning. Research from the Pensions Policy Institute in 2022 suggested that there are around 2.8m pension pots worth nearly £26.6bn that have yet to be claimed, so make sure you check you don’t have any missing retirement savings.
If you can’t remember which provider you were with, or the employer that set up an old pension, the first step is to contact that former employer if possible. You’ll likely need to provide details like your National Insurance number, name and address to track down the information.
If you cannot locate the details through your past employers, the government’s free Pension Tracing Service can help identify old pensions from previous jobs. You’ll need to provide details like employer names and dates to use the service.
Once you’ve tracked down any lost pensions, you can use them to boost your retirement savings. Consolidating multiple pots gives you more control over your retirement savings and enables you to boost their potential growth over time. However, always make sure you aren’t giving up any valuable guarantees first. You can find out more about this in our guide Should I consolidate my pensions?
Read more in our article How to find old pensions and trace lost ones.
6. Think about how to maximise the income from your pension - whilst keeping IHT bills down
Changes announced in the Budget that mean from 2027 pensions will fall into the Inheritance Tax net. This may transform the way some savers think about their pensions and funding retirement. It therefore makes sense to start thinking about what you’ll do with your pension savings as soon as possible and whether the Budget changes might prompt you to draw down more of your pension savings earlier. The two main options when you retire are pension drawdown and annuities.
Gary Smith, Financial Planning Partner and retirement specialist at wealth management firm Evelyn Partners, said: “While the death benefits on offer with annuities currently seem poor value compared to leaving an unspent pot free of IHT, that balance might change slightly in 2027, especially for older retirees who tend to be less keen on drawdown and value a guaranteed income more.
“A pot can be kept in drawdown in early retirement and then spent on an annuity later on, either using all or part of the pension fund, and age 75 may well become an important tipping point, where remaining pots are swapped for annuities – particularly the annuity incomes on offer tend to get better as age increases.”
Find out more in our article 5 ways to beat pension Inheritance Tax Budget changes.
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.
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