It can be hard to save enough for your later years if you’re buying a home or raising a family, but it’s never too late to either open a pension or make sure you’re making the most of your current pot. This article will explore the various ways you can do more with your pension.
Make regular contributions.
One of the most important aspects of managing your pension plan could be regularly paying into your investment. One option you could consider to potentially help reach your goals sooner would be to add any extra disposable money into your pension. With investing, your capital is at risk.
It can be easy to put this off, especially as your retirement can seem so far away and you may prefer the short-term benefits of the extra money. However, over a lifetime of potential compound growth, the additional cash could make a difference if you pay more into your pension as early as possible.
With workplace pensions, the government has set minimum levels of contributions that you and/or your employer must make. The current minimum total contribution for workplace pensions is 8% for eligible workers who are automatically enrolled into their workplace scheme. [1] This total is made up of money from your salary and money contributed by your employer.
Remember, pensions have access restrictions – you can’t currently access your pension until you’re at least 55 (this is set to rise to 57 in April 2028).
If you’re wondering how to fund your pension plan yourself, you could consider setting up a direct debit or using a top-up feature such as impulseSave® in the True Potential app*. This ensures you’re paying in regularly, helping you potentially reach your retirement goal sooner. It’s important to remember, as with any investment, the value of your pension and any income may fall as well as rise and is not guaranteed.
While investing does give you more potential for growth, good performance is never guaranteed. Investing typically involves more risk than saving, as your money is exposed to the volatility of the markets you invest in. While there can be potential for greater returns you could also get back less money than you put in – especially if you withdraw your investment within a short period of time.
Getting the most from your employer.
Providing you are eligible for automatic enrolment, each time you pay into your pension your employer will also make a contribution.
Through auto enrolment, there is a minimum contribution rate of 8% of your qualifying earnings whereby employers must contribute at least 3% and employees pay in 5%. [1]
Some employers may offer contribution matching and agree to pay more than the minimum 3% if you choose to increase contributions too.
Adding onto your National Insurance record.
Each qualifying year after 6th April, 2016 added to your National Insurance record increases your State Pension amount, up to the full rate (£221.20 a week).[3]
You may be able to add more National Insurance qualifying years by:
- Working and paying National Insurance contributions until you reach State Pension age
- Getting National Insurance credits
- Making voluntary National Insurance contributions to fill gaps in your record [2]
Find and consolidate your pensions.
Throughout your career, you’ll likely have several jobs. As a result, you may end up with several pension plans in the UK. Having multiple pensions can be confusing and can be hard to manage when the time comes to withdraw. Pension consolidation can bring multiple pension pots together into a single pot and could be an option to consider if you have more than one pension and would like to track them in one convenient place.
While it can be convenient to see your pension performance and eventually manage withdrawals in one place, you’ll also avoid losing track of old pensions. Transferring your old pensions into a new plan will also mean being able to take advantage of drawdown, giving you potentially greater control over your money.
On the other hand, you’ll need to be wary of losing final salary pension benefits. Sometimes called a ‘Defined Benefit’ or ‘Occupational’ pension, a Final Salary pension pays you a set amount of money for the rest of your life once you retire. If your pension is a defined contribution or money purchase scheme, this isn’t a final salary scheme, therefore there may be more value in transferring it. Ultimately, any decision around your pension pot is a big one and speaking to a financial adviser could be beneficial to decide what course of action to take.
You can lose your guaranteed annuity rate if you change to another type of pension or a different annuity provider. If you are in a pension scheme with benefits, it may be best to keep it separate rather than consolidating elsewhere.
The amount you may potentially pay in pension transfer charges or exit penalties will also vary from provider to provider and from scheme to scheme. It’s important to check these fees with your existing provider before you transfer.
Ultimately, any decision around your pension pot is a big one and speaking to a financial adviser could be beneficial to decide what course of action to take.
Harness the power of tax relief.
Tax relief is a valuable benefit that boosts your pension pot with contributions from the government on top of your own, based on the tax you would have paid on the income.
You can get tax relief on your pension contributions in two key ways, which are ‘relief at source’ and ‘net pay.’ You’ll receive tax relief at the highest rate of income tax that you pay. If you’re a basic rate taxpayer, you’ll get 20% tax relief. If you qualify, you’ll need to claim higher rate (40%) and additional rate (45%) tax relief on pension contributions yourself by completing a self assessment tax return. [4]
Maximising the tax relief on your contributions is one of the best ways to take advantage of your pension and support an early retirement.
It’s important to note tax is subject to an individual’s personal circumstances and tax rules can change at any time.
Use your annual allowance to reach your goals.
Your annual allowance is the total that you, your employer and any third party can pay in across all your pension plans in any given tax year before you have to pay tax. For the 2024/25 tax year, you can get tax relief on pension contributions up to the annual allowance of £60,000 or 100% of eligible earnings, whichever is lower.
It’s important to ensure your gross contribution does not result in your total gross personal contributions exceeding your relevant earnings in this tax year, nor does it result in your total gross contributions from all sources exceeding the Annual Allowance.
While pensions have generous tax benefits, they also have restrictions on how you can access your money. The normal minimum pension age is the earliest age that you can usually access your pension savings and is set by the government. You can’t currently access your pension until you’re at least 55 (this is set to rise to 57 in April 2028). [5]
You can also hold as many pension pots as you want, but there’s a limit to how much you can contribute to them in each tax year. [6]
Track your performance.
To manage your pension effectively, it’s worth regularly checking in on its performance. While a pension is for the long term and takes years to build up, it can still be useful to engage with what’s happening regularly.
Regularly tracking performance can encourage you to consider investing, but keep in mind it’s impossible to predict the markets. Past performance is not a reliable indicator of future results. Consistent investing over the long term could potentially help provide the foundation for building wealth. With investing, capital is at risk.
Do more with your pension for a better retirement.
There are a few things you can do with your pension, from regularly paying into your investment to making the most of your annual allowance to reach your goals.
If you’re a True Potential Wealth Management client and have any queries about managing your pension, you can speak to one of our financial advisers or call our Relationship Management Team on 0191 500 9164. They’re available 7am-8pm on weekdays and 8am-12pm on Saturdays.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.
If you do not currently invest with True Potential and would like to find out how we could help you do more with your pension, contact us today – we are happy to speak through the available options and help you do more with your money. Please call one of our experts on 0191 625 0350 to get started.
Tax is subject to an individual’s personal circumstances and tax rules can change at any time.
You should ensure your contribution does not result in your total pension contribution within the tax year exceeding £60,000 or 100% of your earnings, whichever is lower. Pension eligibility and tax rules apply.
True Potential Investments LLP is authorised and regulated by the Financial Conduct Authority. FRN 527444. Registered in England and Wales as a Limited Liability Partnership No. OC356027.
True Potential Wealth Management is authorised and regulated by the Financial Conduct Authority. FRN 529810. Registered in England and Wales as a Limited Liability Partnership No. OC356611.
Sources
[1] https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay
[2] https://www.nidirect.gov.uk/articles/understanding-and-qualifying-new-state-pension
[3] https://www.gov.uk/new-state-pension/increase-retirement-income
[4] https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
[5] https://thepeoplespension.co.uk/minimum-pension-age-change/
[6] https://www.standardlife.co.uk/articles/article-page/can-i-have-multiple-pension-plans
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