Most of us would like to believe that we are saving enough for retirement. After all, no one wants to get close to retirement only to realise that their pension pot is insufficient and cannot cover them adequately.
With this in mind, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, has provided four simple, practical tips to boost your pension pot for a comfortable life in your golden years.
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1. Make the most of your employer’s contribution
Under the auto-enrolment initiative, UK employers are required to automatically enrol eligible staff into a pension scheme and make mandatory minimum contributions into the scheme. The auto-enrolment minimum contribution is usually 3% of your qualifying earnings.
While many employers will only contribute the required minimum, there are some who will increase their contribution to your pension if you also increase yours (up to a certain limit). This is called ‘contribution matching’.
Over time, it could provide a big boost to your pension pot. So, if you are enrolled in a workplace pension, check with your employer to see if such an offer is in place and check the limits.
Of course, make sure that you can afford to make the extra contributions without jeopardising your current financial well-being.
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2. Make a big lump-sum contribution
If you have come into a windfall, such as an inheritance, lottery winnings or a work bonus, making a one-time large contribution to your pension can be a quick and easy way to give it a major boost.
The government will top up your contribution with tax relief (up to a certain limit). And if you leave it invested for several years, you could end up with a much larger pension pot than you would have otherwise.
3. Carry forward any unused allowances
The annual allowance (the highest amount you can pay into your pension(s) each year and get tax relief) is £40,000 for most people. However, you can carry forward any unused allowance for the past three years.
Of course, this might not be possible for everyone. But whatever portion of your unused allowance you can contribute can still make a significant difference to your pension.
If you are a higher earner or if you have already accessed your pension, Morrissey advises that you exercise caution since the annual contribution you can pay with tax relief could fall to as low as £4,000.
She states: “Any contributions above this amount could attract a nasty tax charge, so keep an eye on what your limits are before contributing.”
4. Boost someone else’s pension
For example, if your partner is not working, you can contribute up to £3,600 per year to their pension. You can also do the same for your children via a junior self-invested personal pension (SIPP).
