Every year in September, Pension Awareness Week takes place with the aim of educating the British population about all things pensions and retirement planning. Not only can pensions can be complex and difficult to understand, but many people also struggle to prioritise their pension when there are so many pressing financial obligations to deal with in the here and now.
However, it’s also true that the more prepared you are for retirement, the more likely it is that you’ll be able to live comfortably and truly enjoy life after work. With that said, here are our top five pension tips to get you on your way.
1. Take full advantage of pension tax relief
The more you pay into your pension pot, the more you benefit from pension tax relief.
The amount of tax relief you get on your pension contributions usually depends on the rate of income tax you pay. So, if you’re a basic rate taxpayer, you’ll benefit from 20% tax relief, whilst higher and additional rate taxpayers can get 40% and 45% tax relief, respectively.
For example, if you’re a basic rate taxpayer, HMRC will contribute £20 for every £80 you pay in.
If you’re employed and paying into a workplace pension, your pension contribution is usually deducted from your income before you pay any tax, meaning that you receive immediate tax relief in the form of a lower income tax bill. This can come in useful if your earnings take you over the higher or additional rate tax bands – you might choose to direct this excess into your pension instead to bring your income back under the higher rate threshold.
Your pension contribution can also be directly deducted from your pay packet. If this is the case, you’ll get 20% tax relief paid into your pension; higher and additional rate taxpayers can claim any additional relief they’re entitled through by submitting a tax return to HMRC.
Over the years, it can really add up!
2. Think long term – and don’t panic!
Pension savings take the form of investments, meaning they can go up and down in line with current market conditions. In market downturns, there can be a tendency for people to panic and make snap decisions about their pensions.
From history, we can see that, yes, downturns do happen and, yes, they can have a significant impact on pensions – the 2008 financial crisis and the Covid-19 pandemic are just two more recent examples. But history also tells us that markets do recover. For example, the Office for National Statistics calculated that the UK economy was back to its pre-recession size just six years after the 2008 downturn first began, and 11% larger a decade on.
So if you do have some years to go until you retire, don’t panic, keep up your pension contributions, and take a long-term perspective.
If in doubt, take financial advice. A professional adviser can offer guidance on the most suitable course of action for your circumstances.
3. Contribute what you can, when you can
It can feel really difficult to prioritise your pension, which will only start benefiting you years into the future, over the here and now. This is especially true at present, with high inflation and mortgage rates squeezing people’s incomes.
But there are certain times in our lives where we might have a bit of extra cash to spare – perhaps due to an inheritance, a work bonus or even competition or lottery winnings! Putting at least some of this extra money into your pension could have some serious long-term benefits.
If you are adding large ad hoc sums to your pension, just be mindful of the current annual allowance of £60,000 and the lifetime allowance of £1,073,100.
4. The best time to start is now!
If in the past you perhaps haven’t prioritised your pension as much as you think you should have, don’t be too hard on yourself. In fact, a 2022 survey by DWP found that 16% of 40-75 year olds had not yet started saving for retirement. After all, it’s not easy to balance your current financial priorities with needs you will have in what feels like the distant future.
No matter what your age or what life stage you’re at, though, it’s never too late to start focusing on your pension. If you’re at a later stage in your career, you may be able to make larger contributions and benefit in turn from larger employer contributions and government tax relief.
And, depending on your personal circumstances, you might decide to delay retirement and leave your pension savings invested for an additional few years, to give them a little longer to grow.
There are plenty of options even if you start saving into your pension later in life, and the best time to start is always now. If you’re unsure about your income needs in retirement or how much you should be saving, it might be wise to take professional financial advice to get you on the right track.
5. Track down your lost pensions
Did you know that, in the UK alone, £26.6bn of pension savings are languishing in 2.8 million ‘forgotten’ pension pots? People might ‘lose’ a pension because they’ve forgotten about or can’t access pension pots from previous jobs, or they’ve moved house or changed their name without telling their pension provider.
With the value of lost pension pots averaging £9,470, these forgotten savings could make a huge difference to the futures of millions of people.
If you think that you might have lost a pension due to a job move or a change of address, the government has a tracing service designed to find the contact details for lost pensions.
Ready to prioritise your pension?
If you want to better understand your pension needs and ensure you have enough saved for a comfortable retirement, please get in touch via the form below. At RetireInvest, our financial advisers are always here to help you meet your financial needs – both now and in the future – so that you can look forwards with confidence.