SAVING for retirement might not feel like a top priority, but simple tricks could boost your future pension pot.
As the cost of living crisis worsens, many households are putting off saving for the future just to afford essentials, but forgetting about your pension could be a costly mistake.
Simple tricks and taking advantage of work perks can help you boost your retirement income.
Clare Moffat, pensions and legal expert at insurance company Royal London, has revealed her top tips for boosting your nest egg.
Opt into your workplace pension
Most people get a state pension when they retire, but saving extra through a workplace pension scheme will mean you get a bigger income at retirement.
Under auto-enrolment, anyone over age 22 who earns more than £10,000 will automatically be signed up to their company’s pension scheme.
If you earn less or are younger though, you can still ask to join.
Under government rules, you’ll pay a minimum contribution of 5% of your earnings and your employer will put in 3%.
Some employers will put in more however, and you can increase your contributions too.
You don’t pay tax on money you put into a pension, so it’s a good way of reducing your tax bill.
What’s particularly helpful about saving through work is that the money automatically comes out of your pay packet each month so you don’t have to think about it.
Consolidate your pots
If you’ve had a number of different jobs over the years, it’s likely you have a few pension pots – and you might have old ones you’ve forgotten about.
Tracking down old pots and combining them into one not only means less admin, but it could help your savings grow faster.
If you have lost track of old savings pots you can use the pension tracing service to find them.
Clare said for each of your pension pots you’ll pay a fee to the provider, called the annual management charge.
She said: “It’s a good idea to check the charges as some providers are cheaper than others, so you could save money by consolidating your different pots with the cheapest firm.”
If you are moving an old pot though, do check all the details – older so-called defined benefit pension schemes may have valuable perks that you’ll lose if you switch.
It’s usually worth taking professional advice if you have one of these.
You should also not be tempted to withdraw money from a pension at too young an age (usually before 55) or you could have to pay up to 55% tax on the cash.
Some out of pension schemes could affect them.
Many people dream of retiring at an early age – the Financially Independent Retire Early (FIRE) movement is all about saving hard so you can stop working in their 40s or 50s.
But for the majority of people, this dream will probably never be a reality.
The age at which you can get your State Pension is 66 and will rise further over the coming years, so unless you have enough savings to support yourself, it’s tricky to retire before then.
As people live longer, Clare said a “growing number” are phasing into retirement rather than stopping work all at once.
Many people move to part-time or flexible work, or even start their own business as a way of easing into retirement.
Clare said: “These earnings mean you can top-up the income from your pensions, or dip into your savings less so your money lasts longer.”
But you might not know what your lifestyle would look like on a certain pension pot.
The Pensions and Lifetime Savings Association offers up useful guidance on what a certain pension income a year will do for your way of living.
It has created a series of examples to show what kind of living standard different people could have in retirement depending on their salaries and savings.
Get help from others
If you can’t afford to pay into your pension, you can get others to contribute to it.
Some parents might get to a point where they’re able to afford to put some of their own money aside for their children through something like a self-invested personal pension pot (SIPP).
Grandparents can also pay into such a pot, with a maximum contribution of £2,880 per year.
On top of that, you’ll get a 20% tax relief top up from the government which means up to £3,600 can be contributed to the child’s account a year.
Hargreaves Lansdown, a wealth management company, has estimated how much someone might get on their 18th birthday if their parents or grandparents added money to their SIPP accounts every month from birth.
If your monthly contribution, including tax relief, was £100 a month, the child would expect to receive £33,475,32 by their 18th birthday.
If the monthly contribution is £200, you would be looking at £66,950.64
And if £300 is paid each month, you’d be looking at a nest egg of over £100,000.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Even small amounts can make a big difference over time and you can make ad-hoc payments as and when you can afford them rather than committing to making a monthly contribution.”
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