8 ways to boost your pension
Treat your current income like it is spoken for - today’s pension contributions will be more valuable during retirement.
Is your pension not looking as healthy as you would like as you head towards retirement? Don’t panic, there are several ways you can give it a boost.
Increase your contributions
The simplest way to boost your pension is to increase your monthly contributions. Even a small increase can make a big difference to your retirement. For example, if someone aged 50 increased their pension contributions from £300 a month to £450 a month, they could add £40,000 to their pension by the time they turn 65 – assuming 5% annual growth.
It’s good to bear in mind that you will get tax relief on anything extra you pay in – provided you don’t exceed the annual allowances – so the government will be boosting your pension too.
One way to minimise the pain of increasing your contributions is to pay in money that was previously being spent elsewhere. So, if you pay off your mortgage you could start paying the equivalent of those repayments into your pension.
» MORE: How to save for retirement
Make the most of bonuses and pay rises
Consider paying all or part of any pay rises or bonuses you receive into your pension. A great habit to get into with pension contributions is to pay a percentage of your income in rather than a set amount. This means every time your income increases your pension contributions will go up too.
If you get an annual bonus, think about paying that into your pension. Not only will this boost your retirement savings, it will also increase your bonus too as you will get tax relief on it.
Get more from your employer
If you have a workplace pension take a look at the terms of your scheme. Some employers will match your contributions so if you agree to pay more into your pension, they will too.
Look for lost pensions
One way to give your pension a significant boost even at the very last minute is to check you haven’t mislaid some of your pension savings. According to the Association of British Insurers there are 1.6 million lost pensions in the UK, worth an average £13,000 each.
Pensions tend to go astray when we move jobs or we change our address and forget to let a pension provider know. You can use the government’s Pension Tracing Service to track down lost pensions.
» MORE: Guide to pension tracing
Don’t take your lump sum
You can take up to 25% of your pension as a tax-free lump sum at any age from 55. But just because you can do this doesn’t mean you should or have to. Leaving your money invested until you retire means it could continue to grow and potentially give you a much larger eventual pension. If it does grow, you can then take a bigger tax-free lump sum upon retirement. There is a risk in doing this as pension growth is not guaranteed, and the value could fall as well.
Delay accessing your pension
The longer you wait before taking your pension the more time it will have to grow and the shorter the retirement period it will need to fund. Leave it invested for a few extra years and you can make a big difference to your eventual retirement income.
You can do this either by deferring retirement or by living off other savings or income sources when you first retire.
Take a look at your state pension
When assessing your future retirement income don’t forget about the state pension. This can add up to £9,339.20 a year to your pension income. If you have less than 35 years of National Insurance Contributions you may not get the full state pension, but there are ways you can increase what you get.
Apply for a state pension forecast via the government website to see how much you can expect to receive. If you aren’t forecast to get the full amount you may be able to increase it by making voluntary contributions. You can also boost what you get by deferring your state pension, if you don’t need the income straightaway.
Get professional advice
An expert may be able to spot other ways you can increase your pension including changing your investment strategy. You can also find an Independent Financial Adviser (IFA) at Unbiased or via the Personal Finance Society. Once you are 50 or over you are also entitled to a free pension consultation with Pension Wise, however, this service only offers generic guidance, not specific advice tailored to you.
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Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more