If you are lucky enough to be in a company pension scheme, then congratulations; it’s time to think about what you can do to make sure you get the most out of it. Here are five things you should do when trying to boost your pension.
1. Talk to your HR department and manage your pension contributions
Ok, there is no secret here – increasing your own contributions is by far the best way to boost your pension. In the last 20 years, there has been a shift towards defined contribution (DC) plans, which are pensions that do not provide guaranteed benefits. Instead, the amount of money you receive is based on the investments you and your employer make and the growth of these investments.
You will be automatically enrolled into your company pension scheme if you qualify. You can find out from your HR department what you need to do to gain access if you don’t automatically qualify and start taking advantage of it. If your employer offers matching contributions, think about maximising these. Some employers are very generous with matching contributions. For example, an employer may offer to match your contributions up to 8%. Some employers go one step further, offering double matching!
You can contribute a maximum of £40,000, or 100% of your earnings each tax year, whichever is lower.
Never assume the minimum contribution will be enough. It is only the minimum.
2. Check your pension tax relief
You get tax relief on the money you pay into your pension, which can help to build up a bigger pot for retirement. Most companies operate a ‘tax relief at source’ system. It works by your employer paying contributions NET of basic rate tax.
Your pension provider sends a claim to HMRC for basic rate income tax. However, higher rate and additional rate taxpayers will need to claim further tax relief through HMRC. Many people miss out on additional tax relief as they’re not aware of this duty.
If you’re not getting tax relief at source, ask your employer why. There might be a good reason for this – for example, some companies operate a ‘net pay’ system where pension contributions are taken off gross pay rather than net pay. In this case, employees would get full tax relief automatically at source. It’s worth double-checking every year or so using the government’s assessment tool at https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief
Tax relief is one of the most valuable features of a pension. For example, a contribution of £1,000 would cost a basic rate taxpayer just £800. The same £1,000 contribution would cost a higher rate taxpayer £600 and just £550 for an additional rate taxpayer after tax relief has been claimed.
3. View the list of investments inside your pension
Pensions can be complicated and confusing, especially if you’re not sure what’s inside. The first step in learning how your pension works is finding out which funds you’re invested in. Luckily, there is a vast amount of information on each providers website and it’s easy to quickly establish where your money is going each month.
Pension providers offer a default pension fund. However, pension providers give employees the opportunity to invest their pension funds in other options including ethical & sustainable funds, higher risk funds, lower risk funds and funds with a steer towards a certain geographical area or industry.
For example, Royal London have a default pension fund invested at a medium risk level. However, they also have a sustainable fund range, 40 internal funds and another 120 externally managed funds.
Getting the underlying investments right is a great way to boost your pension. Younger employees may want to consider higher risk options, as they have more time to seek higher returns and can afford more volatility. However, you need to be able to sleep at night.
4. Understand your pension fund’s approach to risk
The best way to understand how your pension fund works is to educate yourself on how it generates returns. By doing so, you will be able to better assess your risk exposure and make more informed decisions about your overall financial plan.
A default fund is normally invested at a medium risk level. If you consider yourself someone who can withstand higher risks, then you may want to consider altering the underlying funds to match your own risk tolerance. The reward for accepting higher risk has historically been higher returns, providing a free boost to your pension fund. However, past performance is not a guide to future returns.
5. Get your employer to pay for a financial adviser
Warning: Shameless plug coming up…
At Engage Wealth Management we offer workplace pension services, providing educational seminars, annual 1-1’s and being on-hand for employee queries around their company pension.
However, speak with your employer about more tailored financial planning advice. A full financial planning review at a fixed cost could help you understand your investment options, risk, how much to contribute and crucially…will you have enough money for the rest of your life?
Saving for your pension is not a one-off job, it’s a long-term commitment, so it’s always worth looking at ways to increase the amount of money you have for retirement. Use these valuable tips above to help boost your pension and secure your financial future.
You might find our recent blog on consolidating pensions useful.
- Contributions – increase your contributions if it’s affordable
- Tax relief – make sure you’re getting it right
- View the underlying investments – Are there better options?
- Understand risk levels – Can you afford to/need to increase your risk level?
- Get your employer to pay for financial advice
Get in touch today to discuss your options:
01273 076587 or drop us an email firstname.lastname@example.org
*This blog is for information purposes only and should not be relied upon for advice. Always seek regulated advice before proceeding. *