A pension is a long-term investment that you cannot access until retirement age. The value of your investments will vary over the years and will be heavily influenced by the interest rates available, as well as any tax changes present at the time.
This does not constitute advice and advice should be sought in all instances before acting on it.
At the moment, many people are facing increased pressure on their finances because of sky-high inflation and the cost of living crisis. When you’re concerned about what is happening to your money now, it can be hard to find time to think about what your wealth will look like in the future.
No matter what the current state of the economy looks like, it’s important that you don’t forget about contributing to and growing your pension. Here are a few ways to ensure you maximise your pension.
It’s rarely a bad idea to join a workplace pension. Most employees will be automatically enrolled in a workplace pension scheme which consists of your own payments (5% or more of earnings) that are often pre-tax deductions from your salary, making it easier to save, and your employer’s contribution, which at the very least will be equivalent to 3% of your earnings. Most employers will offer more than the minimum, though, and others might match any additional contributions you make. This is free money toward your retirement so it’s worth checking to see if you’re getting all you can from this valuable benefit.
Not only do workplace pensions carry the benefit of employer contributions, but those with workplace schemes, along with personal pensions, also have the added benefit of extra money from the government.
To encourage people to save for retirement, the government offers a ‘tax relief’ top-up to pension payments. The type of plan you have and the rate of income tax you pay will dictate how you receive this relief. stSome workplace pensions will offer tax relief in a unique way such as through salary sacrifice or exchange schemes, so be sure to confirm what type of relief is offered through your plan so you don’t miss out on any help you’re owed.
Don’t rely on the state pension
While the state pension is a great starting point, it’s important to understand that it will not cover all your expenses during retirement and there are limits as to when you can even access your funds. According to Retirement Living Standards, a single person would need £10,900 a year for just a ‘minimum’ standard of living during retirement, £20,800 for a moderate lifestyle, and for a comfortable lifestyle, they would need £33,600 a year.
With the current State Pension coming in at just £9,600, there is still a gap to bridge, so you’ll need other sources to help boost your pension.
Regularly review your pension plan
A pension plan is not something you do once and never revisit, you need to consistently review your plan to ensure you’re on track to meet your goals. When you review your pension plan, you’ll be able to see if your rate of contributions is enough or if you need to step up your payments. The earlier you’re able to top up payments, the more compounding will work in your favour.
Understanding how your workplace or private pension works, taking advantage of ‘free’ payments from your employer and the government, and minimising the tax you pay could make all the difference to your long-term finances.
Need help maximising your pension?
Pension schemes can be difficult to understand, but you’ll be glad once you wrap your head around everything. Getting the help of a financial adviser can make the whole process easier, and knowing that your financial affairs have been reviewed by experts will help put your mind at ease. To get started on a pension plan or to review one already in place, get in contact with us today.