Guide to Maximising Pensions Savings

Many people feel financial pressure at the moment due to rising inflation and the cost-of-living crisis. In these challenging circumstances, it can be hard to consider saving for the future.

However, there are still ways to maximise the value of your pension savings, even in the current climate.

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Free money from your employer

If you are offered to join a workplace pension, it’s generally a good idea to do so. Most employers today must automatically enrol employees into a workplace pension scheme. Furthermore, some people are offered a pension plan without meeting certain criteria.

Workplace pension schemes are made up of your own payments (5% or more of earnings), which are deducted from your salary, usually before you pay tax. This makes saving easier, and your employer’s contribution must be equal to 3% of your earnings at the very least.

Many employers offer more than this, so it’s worth checking if you’re getting the best valuable benefits.

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Extra money from the government

If you decide against investing in a workplace or personal pension, you also turn down help from the government as they provide a top-up called ‘tax relief ’ to pension payments to encourage people to save for retirement.

The way you receive tax relief depends on the rate of income tax you pay and the type of plan you have. For example, a basic rate taxpayer saving into a personal pension in the current tax year will get 20% tax relief on payments. So, if you pay £200 a month into your pension, the £40 of tax relief you receive on that payment means it will only cost you £160. Those who are higher rate or additional rate taxpayers could claim back more.

Tax relief can be offered in a different way, with some workplace pension schemes, such as through salary sacrifice or exchange schemes. And in Scotland, the tax relief details are slightly different. But the general point is the same: every time you defer paying into a pension plan, you miss out on the additional boost.

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The State Pension will not cover everything

A common mistake is that many people assume the State Pension will meet their retirement needs. However, the State Pension is not available until your late 60s and most likely will not cover all of your outgoings.

The new flat-rate State Pension is currently £185.15 a week, £9,600 a year. At the same time, the Pensions and Lifetime Savings Association (PLSA) states that the average single person needs £10,900 a year to provide a ‘minimum’ standard of living, which further increases to £20,800 a year for a ‘moderate’ lifestyle. This includes a car and annual help with maintenance and decorating.

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Keep track of all your pension plans

If you have moved home or changed jobs and have not informed your pension provider, one of these ‘lost’ pension pots could be yours. It’s worth tracking down any missing pots to give your future finances a boost.

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The minimum contribution is generally not enough

Auto enrolment has boosted the pension pots of millions of people, but the minimum 8% payment often does not provide the retirement lifestyle most people desire. Given this, it’s important to determine what retirement lifestyle you would like, and you then work out what’s feasible before putting the necessary steps in place to achieve your goal.

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Review your pension plan frequently

Talking about your pension plan may not be appealing, but putting your pension on the back burner and not giving it any attention can be a serious, costly mistake. Taking small steps, such as topping up your payments in your 20s, 30s or early 40s, can make a big difference due to the effects of compounding.

By understanding your workplace or private pension, you can determine how to get more ‘free’ payments or use them to pay less tax. This could make a significant difference to your long-term wealth.

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Understand where your funds are invested

A common mistake is being unaware of where your pension pot is invested and whether it matches your priorities during that stage of your life. For example, if your retirement is some years away, you may be able to take more risks. Conversely, if you are approaching retirement, you may want to reduce your risk.

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Need a hand with your retirement plans?

Pension rules are ever-changing and can often be complex to understand. However, careful financial planning can help you manage your finances as tax-efficiently as possible and ensure you have enough money to enjoy the retirement you would like.

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To discuss your pension plans and how we can help, get in touch with our team today.

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_{A PENSION IS A LONG-TERM INVESTMENT THAT IS USUALLY NO ACCESSIBLE UNTIL THE AGE OF 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).}

_{THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP WHICH WILL HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.}

_{TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE.}