Take your pension to the max
Throughout your working life, keeping track of your pension is crucial to ensure you save sufficiently for the future. Reviewing your pension can help you identify any potential shortfalls and, if necessary, increase your contributions to address these gaps.
First and foremost, let’s explore how your pension operates. When you contribute to a personal or defined contribution workplace pension, your payments are invested in various investment funds. As you continue to contribute, your pension pot should grow. However, it’s important to remember that the value of investments can fall as well as rise and is not guaranteed.
Your contributions will generally benefit from tax relief, although how this works depends on your circumstances and the scheme you contribute to. The value of any tax benefit is also contingent on your situation. If you’re paying into a workplace pension, your employer will also contribute.
Accessing your pension pot
You can access your pension pot starting at age 55, though this age will increase to 57 in April 2028. Exceptions apply, for instance, in cases of ill health[1]. It’s important to remember that the age at which you can access your State Pension is higher compared to personal or workplace pensions.
Why consider increasing your contributions?
Increasing your pension contributions could significantly boost your savings, potentially enhancing your standard of living in retirement. The Pension and Lifetime Savings Association suggests that a single-person household outside of London needs £31,302.40 a year for a moderate retirement lifestyle[2]. This comprises the full State Pension of £11,502.40 a year for the 2024/25 tax year plus £19,800 a year from personal pension savings.
Getting back on track
If you’ve realised that your savings are not on track and can afford to do so, increasing your contributions will potentially give you more time to get back on course. Remember, contributing to a pension can be tax-efficient as well. In a workplace pension, some employers might offer enhanced contributions you can use. We’ll delve deeper into this later.
Is increasing contributions right for you?
Deciding whether to increase your pension contributions is a personal decision that hinges on your circumstances. Consider your other financial priorities, such as paying off debts, a mortgage or building an emergency fund. Once you’ve reviewed your outgoings and anticipated future expenses, you’ll have a clearer idea of whether increasing your pension contributions is feasible.
Ways to boost your pension contributions
We can advise how to increase your pension contributions by updating your online pension account or speaking to your employer or pension provider.
Here are some steps to consider:
Make the most of employer contributions
In some workplace pension schemes, employers will increase their contribution to your pension pot when you do. They may even match your contributions up to a certain amount. If this is an option for you, it could be an easy way to augment your pension pot with minimal extra effort from you.
Consider salary sacrifice
Check whether your employer offers ‘salary sacrifice’. Instead of making personal contributions directly, your gross salary is reduced (‘sacrificed’) and, in return, your employer increases their pension contribution by at least the same amount. You don’t pay Income Tax or National Insurance contributions (NICs) on the sacrificed amount.
Depending on the structure of the salary sacrifice arrangement, your employer’s pension contribution could be increased by some or all of the savings in NICs. It’s a complex subject, but your employer can explain how it works for you if offered.
If you finish paying off a purchase
If you’ve been comfortably making regular repayments on a loan, car or holiday, consider redirecting that money into your pension once the repayments are complete. If you’re not missing the extra income in your bank account, it might be easy to save more without noticing.
Pay In lump sums
If you come into extra money, such as from a bonus, gift or inheritance, consider investing some or all of it into your pension pot. If the lump sum is substantial, remember the Annual Allowance, which is the total amount that can be paid into your pension each tax year without suffering a tax charge. The current Annual Allowance is £60,000 (2024/25). However, ‘carry forward’ rules may allow you to pay more before being taxed. Your own tax-relievable contributions can’t exceed 100% of your annual earnings.
Generate additional income
If you need to boost your retirement savings, consider generating additional income through side hustles or converting your skills into earnings. Ensure you check your employment contract to avoid breaching any regulations that could impact your main job.
Now that you’ve explored ways to increase your pension contributions and why you might consider doing so, setting goals to help you save towards the retirement you envision could be a wise next step.
Ready to discuss securing the future you deserve?
If you require further information or personalised advice, please contact us. We are here to help you secure the future you deserve.
Source data:
[1] When can I take money from my pension? Data source, MoneyHelper. Accessed February 2024.
[2] Retirement Living Standards. Data source, Pension and Lifetime Savings Association. Accessed February 2024.
This information has been prepared using all reasonable care. It is not guaranteed as to its accuracy, and it is published solely for information purposes. It is not to be construed as a solicitation or offer to buy or sell securities and does not in any way constitute investment advice.
Information based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.
The value of investments and income from them may go down. You may not get back the original amount invested.
Past performance is not a reliable indicator of future performance.