Financial planning is the key to shaping the retirement you want.
If you consider yourself to be nearing the end of your career and/or planning to retire within the next 10 years or so, then you should probably consider these financial planning questions:
> Am I going to be able to afford to choose when I retire?
> Is there a chance I might run out of money?
> How can I be sure I can enjoy the sort of retirement I’m hoping for?
However, planning for retirement is an often-overlooked aspect of personal financial planning, which can be a cause for concern as retirement starts getting closer and closer.
We’ve outlined some suggestions as to how to boost your pension savings and help achieve your retirement goals sooner.
Review your pension contributions
Sometimes the simplest solutions can have the most impact – and, if you want to beef up your savings for retirement, you can simply increase the contributions you make to your pension.
For example, those who are lucky enough to receive a pay rise broadly in line with inflation each year, who then make just a 1% increase in pension contributions, could potentially add thousands to their eventual pension pot, due to the power of compounding.
Of course, the earlier you invest your money, the greater the benefit you will enjoy from the effects of compounding. Increasing your contributions as early as possible just makes the compounding effect even larger, so careful financial planning for the long term is key.
Make sure you regularly review your strategy
Many pension holders are not aware that they can choose how their pension is invested and often just leave the decision in the hands of their workplace or pension provider.
In fact, you don’t have to hold a pension with the provider your employer has chosen. If you wish, you can ask them to pay into a different pension so you can choose the provider yourself, based on the type of funds they offer, the fees they charge and other factors such as ESG (Environmental, Social & Governance) considerations.
Also, a lot of pension providers can offer you several options for investment strategies. If you’re in the default option, you could achieve higher returns with a different strategy (though this will usually mean taking on more investment risk). Note that this may not be appropriate in all circumstances, particularly if you are close to retirement.
Make sure you understand your pension contribution allowances
When you save money in a pension for retirement, the government adds tax relief on top of the contributions you make, which helps you to grow your savings faster. But the amount of contributions on which you can claim tax relief each year are limited by an ‘annual allowance’. For the 2021/22 tax year, the limit is £40,000, or may be lower in some cases, so it’s important to take this into account.
It is also important to know that, if you’ve received a lump such (e.g. an inheritance, proceeds from the sale of a business or other asset…) and you want to contribute more than your annual allowance limit into your pension in one tax year, you can use any unused allowance from up to three previous years.
So, if you have £20,000 of unused allowance in each of the past three years, that’s another £60,000 on which you could claim tax relief for this year.
Tracking down lost pensions
Very often, starting a job with a new employer means starting a new pension and the pension they had with their last employer can be overlooked. As a result, it is surprisingly common for people to lose track of the pensions they had with previous employers. Tracking down lost pensions, especially if contributions were made many years ago, can give a very significant boost to your retirement savings.
Old pensions can usually be tracked down via the provider, so make sure you check through letters and emails you still have from your past employer(s) to see if you can find your pension provider and/or policy number.
If you’re not sure, ask your past employer(s) the about the pension provider and, once you know the name of the provider, they should be able to find your pension by using details, such as your date of birth or National Insurance number.
For independent expert advice about pensions and planning for your retirement, please contact the Farnham-based Fish Saltus team today and we’d be happy to help!
ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS-TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.
A PENSION IS A LONG-TERM INVESTMENT.
THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.