Boost Your Retirement Savings
Saving for retirement is one of the most important financial goals you can achieve. It’s easy to think that planning for the future is something you can put off until you’re much older but the sooner you start, the more money you are likely to finish up with when you retire. So it’s well worth saving as soon as you get a regular income. Even a small amount of retirement savings can provide you with enough income to live on if you need it.
Here are some tips on how to boost your retirement savings to maximise long term returns:
1. Take full advantage of workplace pensions and auto-enrolment
Using your company’s pension scheme and auto-enrollment is an easy way to increase your savings. An occupational pension is an employer-organised pension, and all employees between the ages of 22 and the state pension age are entitled to a pension if their annual income exceeds £10,000.
Most employers have already introduced a pension plan for their employees and, even if the employee does not contribute, the employer pays a minimum contribution. They can also provide a generous matching element to encourage employees to save more for their retirement.
If you are self-employed and not eligible for a workplace pension, you can set up a personal pension to save for your retirement. You can add regular contributions or make ad hoc payments into your self-employed pension, and your pension provider will invest on your behalf.
This permits the provider to offer a larger range of investment options, and therefore gives you more options than the usual workplace pension. While you won’t get the benefit of employer contributions, you will still benefit from tax relief.
2. Benefit from higher rate tax relief
Tax relief is applied to payments made into a pension. The amount of tax relief you get depends on what tax bracket you are in:
- Basic-rate taxpayers get tax relief of 20%. For every £80 you pay in, the government will top this up by £20. This brings the total pension contribution to £100.
- Higher rate taxpayers get tax relief of 40%. For every £60 put in, the government tops this up by £40.
- Additional rate taxpayers get 45% relief. For every £55 put in, the government will give top this up by £45.
3. Use pay rises as an excuse to save
Increasing the amount you pay into your pension is the easiest way to boost your fund value. A good time to do this is if you get a pay rise. You are not used to having that money at your disposal, so instead of giving yourself the opportunity to spend it, redirect a portion of it into your pension.
4. Understand what your pension is invested in
Take time to explore and understand the investment options open to you. Most pension schemes allow you to check online where your money is invested and how your investments are performing.
If you are paying into a pension through your employer, you are likely to be paying into the standard default fund. This offers the advantages that your money is invested straight away in assets such as shares, and that a manager will look after your investments. However, default funds are designed for the needs of the average scheme member, and you don’t choose the assets, sectors or countries where your money is invested.
Depending on factors such as your investment principles, age and attitude to risk, you may find that the default option is not suitable for you. You may prefer the potential for high returns, or you may not agree with the ethics of the company or industry where some of your investment money is allocated.
There will be other funds to choose from in a workplace scheme and these are worth considering.
For people saving into a personal pension, check that your investments are diversified and that you are not overpaying in fees.
5. Avoid pension scams
Beware of pension scams. Fraudsters are posing as investment professionals and trying to persuade people to transfer their money into unauthorised schemes. These are likely to be high-risk investments, which may even be fake accounts so you could lose your money.
It’s always worth checking the FCA register of regulated companies (fca.org.uk/register), and the FCA warning list of known scam firms (fca.org.uk/scamsmart/warning-list).
If you have any questions about retirement planning, get in touch today.
Written by: Kariemah Boltman
30 June 2022