5 Ideas to Grow Your Pension Pot

You may have been saving for your retirement for many decades. You could have plans to travel the world, spend more time with your family or take up a new hobby. But how do you know if you have saved enough for a comfortable lifestyle?

According to the Pensions and Lifetime Savings Association, the amount needed to live a moderate lifestyle retirement is £31,300 a year for a single person and a couple £43,100.

If you consider that the State Pension is £11,500 per year for the 2024/25 tax year, you would need to find an extra £19,800 as a single person per year from your savings.

And if you were aiming for a comfortable lifestyle with luxuries such as a foreign holiday and several weekend breaks, you would need £43,100 a year for a single person and £59,000 for a couple.

So, it’s essential to keep track of how much your pension pot is worth. How many years would it fund your ideal lifestyle? If you decide you have a shortfall, make sure you take action early enough. This article looks at five key ways to grow your retirement fund.

grow-your-pension-pot

1. Increase your pension contributions

One way to increase your pension pot is to pay more in each month. First, you need to be sure you can afford to do this. Consider other financial commitments you may have, such as your mortgage, paying off any debts or building an emergency fund.

You may have just finished paying off a regular repayment for a car or holiday, for example, so you may not miss the extra income if you redirected it into a pension. Or you may have a lump sum from an inheritance or work bonus you could invest as a tax-efficient way to boost your pension pot.

In the 2024/25 tax year, you can pay up to 100% of your UK earnings into your pension or  £60,0000 per tax year (whichever is lower). This is your pension annual allowance, meaning you will benefit from tax relief on your contributions.

Also check out the ‘carry forward’ rules, which may allow you to pay more before being taxed. This applies if you didn’t use your annual allowance during the three previous tax years, as long as you’ve used all of your allowance in the year you want to use the carry forward rules.

If you’re employed, it’s worth asking your employer if they will increase their contributions to your pension as you increase yours. And if you’re self-employed, you could consider making pension contributions as that may be more tax-efficient than paying yourself a salary. Just make sure your pension contributions are allowable for tax purposes.

2. Explore salary sacrifice

Another option is to find out if your employer offers a salary sacrifice scheme as part of their pension scheme. Here, you and your employer agree to reduce your salary by the amount of your contribution. Your employer then pays the reduction amount into your pension along with their contribution to the scheme.

As you’re effectively earning a lower salary, both you and your employer pay lower National Insurance contributions (NICs). You’ll also pay less income tax so it means your take-home pay will be higher and your pension savings will be more tax-efficient.

Your employer might even pay some or all their NIC savings into your pension too (although they’re not obliged to). Just make sure you can afford to sacrifice some of your salary in return for pension contributions.

3. Track down lost pensions

Over the course of your career, you may have had many different pensions as you’ve moved from employer to employer so it’s easy to lose track.

However, if you’re trying to evaluate what your fund is worth so you can make informed decisions about the future,  it’s essential to locate all your pensions. Start by writing down all your previous employers and get up-to-date valuations.

The government does offer a free pension tracing service to help you track down any lost pensions as long as you provide the names of your former employers. Don’t let some of your hard-earned savings go unclaimed.

4. Pay into a personal pension

If you don’t think your state pension and your workplace pension are going to fund the type of retirement you’re hoping for, you could consider paying into a personal pension. You’re likely to be offered greater investment choice with your own pension plan than in a workplace scheme. So, it could be an effective way of increasing retirement savings.

Although you won’t receive employed contributions in a private pension, you’ll still benefit from tax relief at your marginal rate. Investigate the different types - standard personal pensions and self-invested personal pensions (SIPPs) - as they differ in terms of investment choice and the charges.  Make sure you can afford to pay the additional contributions and choose the right scheme for you.

5. Delay pension withdrawals

You can access your money in a defined contribution (DC) scheme from age 55. This will rise to 57 in April 2028. However, it pays to do some careful calculations.

It may not be best for you to start taking an income at this point. Bear in mind, you can keep paying into your pension and gaining tax relief until you’re 75 so you may decide you want to keep growing your retirement fund as long as possible.

If you do start taking an income from your pension as a flexi-access drawdown, the pension annual allowance of £60,0000 will be replaced by the money purchase annual allowance (MPPA) of £10,000 for the 2024/25 tax year.

You may decide to access other savings such as your ISAs before touching your pension. Remember, any money you withdraw from an ISA is tax-free while any income you draw above your 25% tax-free lump sum from a pension is taxed at your marginal rate.

Choosing the best option for your pension planning can be complex. If you’d like some help in navigating the right path, do get in touch.

You can find out more about eligibility here.

You can check your State Pension record online to find out if you are on track for a full pension.

Speak to a member of our team on 020 7388 7000

Please don’t hesitate to contact a member of the team to find out more about financial planning.