When it comes to your pension plan, it is best to start planning, and contributing, as early as possible. A pension pot can form an essential part of your retirement planning and saving any amount is a good start to help you achieve your desired lifestyle in retirement. In our latest blog, we explore how you can boost your pension savings to help you take control of your future.
Boost your pension payments
If your budget allows, it may be a good idea to think about increasing your monthly pension contributions. Even saving as little as an extra 1% of your salary could really go a long way towards investing in a better future.
Keep in mind that you benefit from compound interest with your pension pot, something which can make a big difference to your retirement savings as the returns are compounded. In the short-term, the effects may be small, but over a longer period you can significantly build up your pension investment as the interest accumulates over time, especially if the pot remains untouched.
You can also make one-off additional payments to your pension – if you receive a work bonus or an inheritance, it may be worth thinking about putting some, or all, of the payment into your pension pot.
Think long term and diversify
Don’t worry about short term fluctuations when it comes to your pension pot. Remember, most people will be saving into their pensions for many years and long-term investments provide better returns over a longer period than, for example, putting money into a savings account. When markets are low, you can buy your investment at a better price, and benefit when they ultimately increase in value.
By diversifying (having a mix of different types of investments), you can reduce the risk of these big fluctuations (most default workplace pension plans will do this for you). If you don’t have the time or experience to amend your plan, many pensions have options to package different types of investments together, but if you want some help, it is always worth speaking to an expert who can assist you in making the right decisions for your future.
Make the most of pension tax relief
Typically, the more you pay into your pension pot, the more you will gain from taxable benefits…
Tax relief is paid on your pension contributions at the highest rate of income tax you pay so:
- Basic-rate taxpayers get 20% pension tax relief
- Higher-rate taxpayers can claim 40% pension tax relief
- Additional-rate taxpayers can claim 45% pension tax relief
Income tax is slightly different in Scotland, but the effect on your pension payments is very similar.
However, it is important to keep in mind the limit which the government puts on pension contributions on which you can earn tax relief – the pensions annual allowance. For 2021/2022, the limit is £40,000. This means that any pension payments which you make over this limit will be subject to income tax at the highest rate which you pay. Beware of the possible pit falls, for example if you are a higher earner, you could have your annual allowance tapered down to as little at £4,000 pa.
A handy tip is to make use of any carry forward unused allowances from the previous three years to avoid exceeding the limit.
Combine your pension plans into one plan
Life is easier with a bit of organisation – If you have several pension plans there is an option to combine pensions (subject to advice).
Although this is not the right option for everyone, it can be a good way to get a better insight into your overall pension value, make it easier to monitor pension investments and could even cut down on costs.
If you are thinking about this option, it is always worth speaking to a professional as there is no guarantee that you will benefit from transferring all your pension plans into one plan and you could be giving up valuable benefits. Speak to a financial adviser to determine the best options for you.
Get in touch
With a multitude of pension providers, and investment options available, combined with complex legislation, it is more important than ever to seek professional and independent advice to ensure you are making the right decisions for your future.
Contact our financial planning team (firstname.lastname@example.org) who will happily arrange a meeting at no cost to help you achieve more from your long term financial plans.