According to the media in August 2024, the number of Britons whose pensions will not provide the retirement lifestyle has risen. Data from Standard Life reveals that the number of people with pensions that is unlikely to provide the standard of living they want increased from 35% to 38%, when compared to 2023.
This means that more than a third of UK pension holders will not enjoy the retirement they would like, a statistic that makes for sombre reading. That said, there is some good news, as many of those with underperforming pensions might be able to take steps to get them back on track.
Furthermore, if you’re one of them you may be able to do this even if you’re target retirement age is getting close. So, with this in mind, read on to discover five savvy ways you could boost the value of your pension and enjoy your dream retirement.
1. Increase contributions
As the money you contribute to your pension usually receives tax relief, every £100 you put into your pension normally costs just £80 if you’re a basic-rate taxpayer. If you’re a higher-rate taxpayer it will usually cost £60, and if you are an additional-rate taxpayer you may only pay £55.
This means that increasing the amount you contribute into your pension could provide it with a significant boost in a relatively short space of time. Subsequently, you may be able to get your retirement fund up to where it needs to be much more quickly than you might expect.
Always remember that while you’re allowed to contribute any amount to your pension, the Government limits how much of that money receives tax relief. The restricted amount is known as your Annual Allowance, and in 2024/25 is the lower of:
- £60,000
- the amount you earn.
Please note that if you’re a high earner, your Annual Allowance could drop to just £4,000. This is something a financial adviser will be able to confirm, and explain the options available to you.
2. Use ‘carry forward’
If you have a substantial sum of money, for example from an inheritance or redundancy payment, you may want to add it to your pension. If so, you might be able to use ‘carry forward’ to contribute more than your Annual Allowance and still receive tax relief.
Carry forward allows you to utilise the unused amounts of your allowance from the last three years, which means you could be able to contribute up to £200,000 in 2024/25.
As strict rules apply to carry forward, always speak to a financial adviser to ensure it’s right for you. Getting it wrong could result in an unexpected, and potentially hefty, tax liability.
3. Consider increasing your pension’s level of risk
While exposing the investments within your pension to too much risk could be bad for your retirement, so could not taking enough. This is because growth typically comes from higher risk assets such as stocks and shares.
As such, not having enough exposure to them could reduce the growth potential of your retirement fund. This could result in your pension pot not having enough money in it to support the standard of living you want in retirement.
That said, while increasing the level of risk your money’s exposed to may sound like a good idea, always remember that higher risk assets increase the chances of losses during a stock market downturn.
This is why it’s important to ensure your pension is exposed to enough risk over the long-term to provide you with the growth you’re looking for, while keeping a suitable level of protection from losses.
A financial adviser will be able to ensure your pension is exposed to the right level of risk for your circumstances and goals.
4. Find lost pensions
According to the Association of British Insurers in 2022, nearly three million pension pots with a combined total of £26.6 billion cannot be matched to their owners. If you have lost track of one or more of your previous pensions, a financial adviser could help you to find them.
This in turn could help you to get your retirement plans back on track. An adviser could also explain your options when you find any lost pension that you may have, which could allow you to enjoy the retirement lifestyle you want.
5. Combine your pensions
If you have several old pension pots, you might want to consider consolidating them. Doing this could expose your pension pots to greater growth potential, while at the same time reducing the charges you’re paying.
As some pensions carry higher charges than others, merging them into a less expensive one may help to boost your retirement fund’s net growth. This could significantly increase the size of your pension pot when you decide to retire.
That said, please don’t assume that consolidating your pensions is always the right choice, or that it always reduces costs. Your existing pension may have extremely competitive charges or provide valuable benefits you’ll probably want to keep, such as being able to take more than 25% of your pot as a cash free lump sum.
This is why you should talk to a financial adviser before deciding to consolidate. They will confirm whether merging your pension is the best option for you.
Get in touch
If you’re concerned that your pension may not provide the lifestyle in retirement that you want, or would like to discuss planning for your retirement, please get in touch. We can be contacted on 01527 577 775 or speak to one of our advisers, as they’d be happy to help.
Wednesday 11 September 2024