Many people who are approaching retirement age are worried that the pension fund they have been paying into for many years, will not see them through their retirement. We look at how to top up pension funds and make your money work harder for you.
Hindsight is a wonderful thing and many considering retirement may now wish they had maximised their savings during their younger years as they analyse their pension pots.
However, life doesn’t always work like that and it’s never too late to use all of the tools at your disposal to maximise your retirement income. Here are some of our top tips for maximising your retirement fund.
Take advantage of Employer Benefits
If you are still in employment and part of an occupational defined contribution scheme, try and take full advantage of employer matching and tax benefits.
Check the terms of your occupational pension and maximise the amount you contribute, subject to your current budget. Most employers match your contributions up to a capped amount and these contributions will be taken from your gross salary (and adjusted in your P60 tax form accordingly), minimising the tax you will have to pay on that money.
Try to view this as “free” money from your employer and “free” money from the Government. Focus on that, rather than your increased contributions eating into your take-home pay. Moreover, later-in-life budgeting for mortgage payments and childcare arrangements often falls so these funds could be re-allocated to your pension savings.
You are still able to top-up both occupational and personal pensions plan through extra contributions. Additional-voluntary-contributions (AVCs) to your occupational plan can be taken from your gross salary with your tax adjusted accordingly. Any contributions to a Personal pension plan will also need to be declared on your annual Self-Assessment form to ensure you benefit from the correct tax relief. Speak to your tax adviser for more information on this.
The Dreaded Admin
Unfortunately, the era of “jobs for life” and accompanying gilt-edged defined benefit pensions schemes is over. According to the Department of Work and Pensions (“DWP”) on average a person can have 11 employers over their working life and are changing address often too. Even if you have done the right thing and enrolled for your employers’ occupational scheme at each stage of your career, you could soon end up with an extensive portfolio of pension pots. Many schemes now offer online reporting but the standard reporting service is often an annual, mailed report from each pension provider.
It is important to keep your personal details up-to-date with these providers. If you think you are missing statements for old occupational pensions you can hunt down your savings using the DWP’s Pension Tracing Service. Remember, this is your money so check back through your paperwork and ensure you are receiving statements for every pension pot you have paid your hard-earned cash into. The Pensions Policy Institute released a report recently which estimates that there are 1.6 million lost pension pots worth around £19.4 billion.
It is possible to consolidate some defined contribution schemes to reduce your paperwork. However, you must read the small print of each pension and seek financial advice as some providers levy a fee for transfers and some products include valuable benefits such as guaranteed annuity rates which you may be sacrificing if you transfer out of the scheme.
The good news is that FinTech is helping provide a solution and the Pensions Dashboard is expected to launch soon which will allow individuals to view a consolidated report of all their pension savings on one online portal. Although the prototype started this year, the formal launch date is 2019, so there is no substitute for old-fashioned filing of your annual pension statements in the meantime.
The State Pension
Everyone now accepts that the “dream” retirement portraited in adverts cannot be funded by the State Pension alone but this is still as important component of every retirees’ pension pot and it is vital to optimise its use.
You can obtain your retirement age via this calculator and the DWP can also provide a forecast as to what state pension you may receive. The current full State Pension amounts to £164.35/week.
If you have made 35 qualifying years of contributions during your working life you should be entitled to the full State Pension. You can boost your State Pension by opting to defer receipt of it. Your State Pension increases by the equivalent of 1% for every 9 weeks you defer. This works out as just under 5.8% for every full year.
If you have not worked your whole life, depending on your circumstances, it may be worth your while to make additional voluntary National Insurance contributions to help fill any gaps in your NI record and help you maximise your State pension. You should also speak to your adviser about how your State Pension affects any benefits you may be entitled to.
Work with your financial adviser to ensure your portfolio is aligned to your current risk tolerance and the number of years until you intend to access your pensions savings.
Default-choice or “lifestyle” funds are often conservative which may not match your current requirements. If you have many pension pots, your advisor should be to give you a consolidated view of your current asset allocation.
There are many sources of advice such as Independent Financial Advisors (IFA), Chartered Financial Planners (CFPs), Tax Advisers and websites such as PensionsWise, Pensions Advisory Service and the Money Advice Service (these three services are soon due to be consolidated into one).
Remember, if you have not yet sought any advice, under the latest Pension Advice Allowance you are able to withdraw £500 tax-free from your pension pot on three separate occasions to redeem against the cost of regulated advice.
SynerGIS do not offer any investment advice but details of advisers in your area can be found at sites such as unbiased.co.uk or the Money Advice Service.
Downsize and Work more
The harsh reality is, you’re going to work forever.
As referenced during the recent BBC Money Box “Death of Retirement” series the modern reality of retirement is evolving. Contrary to the retirement lifestyle dream portraited in some media, many of us may have to keep up some form of vocation during their autumn years. Advance planning and re-training for part-time retirement roles can ease this transition. If downsizing from your current property is part of the plan – plan this well in advance so you can take your time and asses the best move for your retirement.
Protect your pension pot
Introduced in 2015, The pensions reform was designed to give freedom to over-55 savers to control their pension pots rather than being forced to buy an annuity. Unfortunately, this has created a landscape for unwelcome cold-calling and unregulated firms offering questionable advice.
Be sure to do your research on companies by checking the FCA Register, and the FCA Warning list, and if it's a cold-call, just hang up.
Click here to read our Scamsmart Insight, where we provide some more information on protecting your pension pot.
SynerGIS will soon offer 1 year and 2 year fixed rate bonds, and because the rate is fixed, you know exactly what you’ll get back before you invest. Plus you can use your tax-free savings allowance. We pay your interest semi-annually directly to your nominated bank account, enabling you to optimise your annual Personal Savings Allowance as part of your wider financial plan.
SynerGIS is a trading name of Global Investment Strategy UK Ltd (GIS).
You risk losing your capital should GIS Ltd become insolvent
Provided for informational purposes only. Not designed as advice. Speak to your IFA or tax advisor for advice tailored to your individual circumstances.
Information correct at the time of publishing.