For some, retirement might seem like a long way away. But checking your progress against your goals regularly is vital if you’re going to avoid a nasty reality check later down the line.
In fact, under two thirds of people* we asked thought that being able to cover their bills in retirement was a realistic goal. The struggle to even cover the basics is a far cry from the sandy beach holiday view of retirement that many people aspire to.
*Research of 2,000 people carried out by Opinium on behalf of HL in May 2023
Here are our five top tips to help you maximise your pension in the run up to retirement.
This article isn’t personal advice. If you’re not sure whether an investment is right for you, ask for financial advice. If you choose to invest the value of your investments will rise and fall, so you could get back less than you put in.
5 tips to help boost your pension
1. Start saving early
The longer you delay it, the more it costs to build a good-sized pension.
So the earlier you start investing, the sooner you could start to earn interest or dividends and start seeing compounding work for you.
For example, if you start saving 12% of a £30,000 salary when you’re 30, your pension could be worth around £202,000 at age 67. If you didn’t start a pension until age 45 and paid in the same amount (12% of a £30,000 salary), you’d only build a pension worth around £101,000 by age 67.
These figures take account of inflation (2% per annum) and show the buying power of your pension in today's money. They assume a growth rate of 5%, charges of 1.5%, and that your salary (and so pension contributions) increases by 3% a year. These figures are only an example and not a guarantee of what will happen to your own pension.
HOW MUCH SHOULD I PAY INTO MY PENSION?
2. Maximise your employer pension contributions
The good news is that all UK employers have to enrol qualifying employees into a workplace pension and contribute to it on their behalf.
The bad news is some private sector workers aren’t currently saving into a workplace pension. This means they could be missing out on ‘free money’ from their employer. Many more are just contributing the minimum.
If you have a workplace pension, it’s worth speaking to your employer about paying in more. If you increase your pension contributions, they could pay in more too.
If you’re already contributing the maximum to your workplace scheme, you could pay into a private pension like the HL Self-Invested Personal Pension (SIPP).
An HL SIPP is for people who want to take control of their retirement savings. You can invest exactly where you want and control how much money goes in and when. Remember though, you can’t usually access money in a pension until you’re 55 (rising to 57 in 2028).
3. Get up to a 45% boost from government
Under current pension rules, if you’re a UK resident under 75, you can usually add as much as you earn and receive tax relief each year. There’s also an annual allowance of how much you can pay in – this is £60,000 for most people.
The government adds 20% on top of your personal pension contributions in the form of basic-rate tax relief.
If you pay a higher rate of tax, you could claim back even more in tax relief through your tax return.
Let’s say you’re a basic-rate taxpayer. For every £800 you contribute, the government will top it up to £1,000. If you pay tax at 40%, then a £1,000 pension contribution could cost you as little as £600. As a 45% taxpayer, it could cost you as little as £550.
Pension and tax rules can change, and any benefits depend on your circumstances. Tax bands and rates are different for Scottish taxpayers.
4. Make the most of your unused allowances
If you didn’t use up your full allowance in the previous three tax years, you might be able to carry any unused allowance forward and pay more into your pension.
To be able to carry forward unused allowances, you need to have been a member of a registered pension scheme in the tax year(s) from which you wish to carry forward. This doesn’t include the State Pension though.
You also need to have earnings of at least the total amount you want to contribute. For example, if you want to contribute £100,000 using the carry forward rule, then you need earnings of at least £100,000 in the current tax year.
MORE ON THE CARRY FORWARD RULE
5. Make the most of a pay rise or bonus
If you’re lucky enough to have had a raise or a bonus recently, and you’re thinking of using it to boost your retirement savings, make sure you check a couple of things first.
If you have a workplace pension, your contributions aren’t guaranteed to automatically increase in line with any pay rise.
For example, if your contributions are set at a value rather than as a percentage of your salary, any pay rise won’t be reflected in your monthly payments. You’ll need to talk to your employer or pension provider first and ask to make these adjustments.
Likewise, some employers might also offer a bonus sacrifice (which works in a similar way to salary sacrifice). You can choose to give up some, or all, of your bonus and have it paid it into your pension. You’ll benefit by not having to pay National Insurance or income tax on the amount you give up.
But again, bonus sacrifice won’t happen automatically – you’ll need to apply.
Check if you’re on track for retirement.
Our pension calculator will show you what your pension could pay each year to help make sure you’re on track for the retirement you want.
If you’re not on track, you could consider increasing your pension contributions or delaying your retirement.
Remember to take stock of how much you’ve saved though, not only in your personal or workplace pensions, but also consider any other cash or investments you have. You should be able to access your most recent statements online, or by contacting your bank/building society and pension or investment providers.
How to review your pension pot?
Now that you know how to boost your pension pot and see if you’re on track for retirement, it’s time to review your pension.
Even if retirement isn’t imminent, checking your progress against your goals is important to avoid any nasty surprises.
We think reviewing your pension once a year is a good start to make sure everything is on track.
Want to review your pension but not sure where to start? We’ve put together a quick Know Your Pension checklist to help review your pension.
Power Up Your Pension Webinar
15 September 2023 11:00 am and 15 September 2023 3:00 pm
Our financial wellbeing experts will focus on how you can supercharge your pensions through contributions and investment returns.
Spaces are limited so don’t miss out.
Editor's choice: our weekly email
Sign up to receive the week’s top investment stories from Hargreaves Lansdown
Please correct the following errors before you continue:
Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.