Whether you’re about to retire or have years to go, there are things you can do now to generate more income after work.
Increasing the amount you pay into your pension each month is the easiest way to increase your fund – and can be particularly lucrative if your employer is willing to match some of your additional contributions.
Becky O’Connor, Head of Pensions and Savings at Interactive Investor, gives the example of a person who starts working with £ 25,000, enjoys salary growth of around 1% per year and d ‘an investment growth of about 2.5% per year, and has 8% paid annually. They could have a pot size of £ 179,217 when they retire at 67. If they increase their monthly contribution at the start from £ 168 to £ 189, their fund will be £ 22,000 larger when they retire.
A good time to do this is if you get a raise or when a regular expense – say, paying off a loan – ends. You are not used to having this money at your disposal, so instead of giving yourself the option of spending it, redirect the money to your pension.
The great thing about pension contributions is that they are bolstered by tax breaks, so whatever you pay will be worth more in your retirement fund than it would be in your pocket. For a base rate taxpayer, adding £ 1 to your pension will cost you 80 pence, while for a higher rate taxpayer it will only cost 60 pence.
Combine small pots
If you have had multiple jobs and they have different pensions, it may be worth combining your funds, but only those that are defined contribution plans. Defined benefit plans – also known as final pay – are often more helpful in leaving you where they are than they would be if they were moved, says O’Connor.
The regrouping of several small pensions facilitates their follow-up. You may also be able to reduce the fees that you pay at the same time.
Maximize your state pension
People reaching retirement age after April 2016 who are not on track for full state payment can top up relatively cheaply, says Steve Webb, partner at retirement consultancy LCP .
Filling a recent gap in your national insurance record costs a one-time lump sum of £ 800, he says, but will typically add more than £ 250 to your state pension each year. “Because voluntary contributions are subsidized by the government, you get your money back relatively quickly and after about four years (including taxes) you are usually a beneficiary,” he says. “The main groups that should be wary of are people in poor health (who may not receive their pension for long) or those on means-tested benefits, whose benefits would be reduced if their public pension increased.”
You can find out what you are on track to receive by asking for a retirement forecast – it can be done in line or by phone on 0800 731 0175. The forecast will also tell you if, and how, you can increase the figure.
You can also increase the weekly payment by delaying the time you apply for the allowance, but this carries a risk that you will receive less overall. If you’re already getting your state pension, make sure you’re getting the right amount – a lot of women have been cheated.
Switch to riskier funds
Defined contribution pension plans – those where payments aren’t based on your salary – typically have default funds for your money, and you may find your pot is being invested with caution. If you are young and have a long time to work or are older but know that you do not intend to start collecting your pension until the traditional retirement age, you may want to maybe be in riskier funds than those that are automatically offered to you. .
“In general, the more risk you are willing to take, the higher you can expect to earn over the long term,” says Webb. “Although you should be able to cope with the fact that there may be times when your investment goes up as well as down.”
Your provider’s fund information sheets should indicate how risky an investment is considered. Take a look at what your provident fund has to offer and see if you want to distribute some of your money to higher risk funds – keep in mind that anything other than money can lose value. If your program provider offers advice, it’s worth discussing your options. The government-backed site Moneyhelper.org.uk contains information on what to consider when choosing retirement investments.
Pay in a lump sum
Is your Isa gathering dust? Does the interest rate on your savings account start with more than zero? The money you have in there may work harder for you if you put it into your pension – and it will get tax relief as soon as you do. If you are a base rate taxpayer, paying a lump sum of £ 4,000 will add £ 5,000 to your fundraiser. “If you get a lump sum, putting it in a pension may be the most lucrative thing you can do with it, thanks to tax breaks and long-term investment growth,” says O’Connor. “The earlier you do it in professional life, the greater the impact.”
There are a few caveats: the money paid into a pension is only accessible at the age of 55, and even then it will take time to organize a withdrawal, so it is not the place to put your emergency savings. You also need to make sure that it doesn’t push you beyond the contribution limits – the lifetime limit on the value of your pension is just over £ 1million, and separately whatever you pay back. – over £ 40,000 per year will not qualify for a tax benefit.
Get tips on how to use it in retirement
Managing your pension doesn’t stop when you decide to cash it out – in fact, that’s when the hard work begins. First of all, avoid anyone who calls or emails out of the blue to offer you an investment. Pension scams have exploded since then-chancellor George Osborne made it easier for people to withdraw their money from their retirement funds. It’s wise to discuss your options with an expert before making a decision – your employer might offer you a session when you retire or need your own advice.
If you’re going for an annuity – a contract offering to pay you income in exchange for your fund – you should shop around. “Even if you don’t follow the advice, a supermarket or an annuity broker can help you get the best product,” says Webb.
He says those who want to take 25% of their fund in tax-free cash should think carefully about what happens to the rest, especially if they don’t need it right away. “Too many people withdraw everything at 100%, then put the balance into a cash account with near zero interest,” he says. Instead, you can leave it invested in a withdrawal account or the like until you need it.