Here are our top tips for building a bigger pension.
We all want to enjoy our retirement and having financial stability during this time is an essential part of that. To maximise your pension, we would always recommend that you start saving early and put as much as you can afford into the pot.
However, some aspects of pension planning are less obvious. Here we’ve shared some little-known tips for building a bigger pension and explained how they could help you to have a more comfortable retirement.
1. Claim tax relief within 5 years
Upfront tax relief is one of the biggest attractions of using a pension to save for retirement.
All UK residents under the age of 75 receive a minimum of 20% tax relief when they contribute to their pension. This is claimed and automatically added to your pension by your pension provider.
If you are a higher rate tax payer, you can claim back up to a further 20%. This is normally done through a tax return which must be submitted no later than 4 years after the year you last paid into your pension. Many people are missing out on these savings so don’t be one of them!
2. Consider consolidating pensions from different jobs
Nowadays, it’s uncommon for people to remain with one employer all their lives. If fact, it’s estimated that the average person will have 11 different jobs during their working lifetime – that’s a lot of pensions to keep track of!
The good news is that when you do change jobs, you keep any pension that you’ve built up. However, dealing with different pension providers can prove time consuming and tricky. This is backed up by the fact that there is currently an estimated £400 million left over in unclaimed UK pension savings.
If you have multiple pensions, consolidating them into one pot might be a good solution for you. Before you do this, you will need to check whether you will lose any valuable guarantees and benefits or incur high exit fees.
3. Save on behalf of a spouse who doesn’t work, child or grandchild
It is possible to save up to £3,600 to a pension of a non-earner under the age of 75. This could include a non-earning spouse, for example your wife/husband that has taken time out of their career to raise a family. It could also be a child or grandchild.
Despite the non-earner not paying tax, your contributions receive 20% tax relief. So, you can invest the full £3,600 by contributing £2,880 as the government will fund the remaining £720.
4. Continue paying into your pension pot after retirement
Even though you’re retired, you can continue paying into your pension pot. Up to the age of 75, you can continue to receive tax relief on your contributions depending on your circumstances. Again, a contribution of £3,600 is possible with tax relief.
Why should you save into a pension if you are already retired? As well as the ‘free money’ of income tax relief on your contribution, pension funds are usually exempt from Inheritance Tax so you can potentially save your family an additional 40%.
5. Monitor your pension regularly
It’s great that you’re making regular payments into your pension but it’s also important to monitor it regularly to make sure you’re on track to achieving your financial goals. Over time, you may also want to change the look of your portfolio.
If you’re planning to retire in the next 5-10 years, it’s recommended that you opt for less volatile investments so that your funds are not affected by any short term dips in the market. Those that have longer until they retire, may be willing to take greater risks that could pay off in the future. At Innes Reid we provide our clients with a review either every 6 months or every year depending on what level of service they choose.