Retirement is an important milestone, and like all big life events, you want to be able make the most of it. That’s why it’s important to manage your pension wisely.
If you feel some unease about preparing financially for your retirement, you’re certainly not alone.
From concern around not having enough saved up to live the life you want, to wrapping your head around the complex web of pension options, it can all feel a bit overwhelming.
Thankfully, it doesn’t need to be so complicated.
By adopting the right strategies, you can simplify the whole process in order to maximise your retirement income — and secure the future you deserve.
- Start saving early
- Track down lost pensions
- Combine old pensions
- Increase pension contributions
- Let your pension pot grow for as long as possible
- Take advantage of pension tax relief: SIPP
- Review your investments
- Review pension fees
- Transferring your pension to another provider
Start saving early
With so much to contend with in daily life, it can sometimes feel hard to plan just a few months ahead — let alone years in advance. While it seems obvious that a pension and retirement go hand in hand, many people put off thinking about the money they’ll need until later on.
Yet, the simplest – and arguably easiest – way to establish a sturdy pension, is to start saving as early as possible. This can be an effective way of building your pension, not just because you’ll be saving for a longer period of time, but because of compound growth.
This happens when the profits from the money invested via your pension are reinvested — and make new profits of their own. In other words, creating the potential for your profits to accumulate – “compound” – and strengthen your pension fund over time. Although, as with all investments, you could get back less than you invest.
Track down lost pensions
When moving between jobs, we often leave old pension pots behind. It can feel easy to dismiss the pension money we have forgotten here and there, but in the big picture, they can all add up.
Research from the Pensions Policy Institute found that the total value of lost pension pots has grown from £26 billion to £31.1 billion [1].
Even if you’re not sure whether you have a pension pot elsewhere, it’s good policy to check. This can be done via pension tracing services, which allow you to identify what existing pension pots you have. If you’re looking to get started with this, check out our full blog on how to find your old pensions.
Combine old pensions
Once you know what pension pots you have, it’s time to think about what to do with them.
Your different pots will be invested according to the different strategies and fee structures of the provider holding them. While this isn’t necessarily a bad thing, it can make keeping tabs on the overall performance of your pension challenging.
Another option to help manage your pension is to combine the various pots.
Not only does this mean you can monitor your pension in one place, having a single pension pot worth more could come with added benefits (depending on your provider). Plus, you don’t have to worry about losing money to fees of varying amounts.
In addition, the transparency of a single pension can make planning for your retirement simpler and clearer. If you want to look more into how you can bring together your different pensions, take a look at the Wealthify consolidation page.
Increase pension contributions
It may sound obvious, but increasing your pension contributions can be an effective way of boosting your pension. You can do this by amending the monthly direct debit you pay into your pension so that it's higher, or make lump sum payments when you have money available to put away.
You could also potentially increase the value of your pension pot with a Self-Invested Personal Pension (SIPP). This is because SIPPs allow you the flexibility to invest more of your pension pot, which means you could see greater returns through a diversified range of investments.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Let your pension pot grow for as long as possible
As you approach your pension age, your retirement naturally begins to enter your thoughts. Knowing you have a pension pot that becomes accessible from the age of 55 is certainly tempting. You may feel you’ve waited long enough already, but waiting a few more years can make a big difference.
The longer your pension pot sits untouched, the more potential there is for it to grow (although this is never guaranteed, as investments can go up and down).
Additionally, if you’re concerned there’s not as much in your pension pot as you’d like but you can’t afford to increase your payments, you can always “snooze” it. That is, waiting a few years longer than you’d planned before withdrawing your pension. The nature of compounding means that those extra few years could make a real difference to the value of your pot when you retire.
Take advantage of pension tax relief: SIPP
Another option for planning for your retirement is to take advantage of tax relief via a SIPP. If you don’t already have one, a SIPP is not only free from income tax and capital gains taxes (like other pensions) but also comes with a 25% top up on any personal contributions made.
One of the key appeals of a SIPP is that you have more influence over how your pension is invested, whether you chose to manage this yourself or pick a provider who can make Investment decisions on your behalf.
Also, as a SIPP can sit alongside your workplace pension, meaning you can simultaneously benefit from your employers' contributions in your workplace pension, in addition to the 25% top-up in your SIPP.
With investing, your capital is at risk. The tax treatment of your investment will depend on your individual circumstances and may change in the future.
Review your investments
As discussed, having a SIPP can be a smart way to save for your pension with the added benefit of tax relief.
Still, regular reviews are important to check your investments are performing as you’d hoped — yet many people fail to keep on top of this.
While it’s great to do some of the things listed above – like adding lump sums and consolidating your pensions – reviewing your pension pot(s) can have a large impact down the road, too.
Clearly, from this you can see how seemingly small differences in growth can have a large real-term impact on the value of your pension pot at retirement.
Review pension fees
When reviewing the fees associated with your pension, it’s always important to ask: do you definitely have the best deal?
There’s no need to stay with a pension provider who isn’t giving you what you need – whether that’s poor investment performance or high fees. Your pension pot will most likely perform best when homed with a provider who invests wisely, keep its fees low and fair, and generally makes managing your account clear and easy.
The fees associated with your pension provider can slowly chip away at your retirement money; the higher they are, the more your pension pot suffers. Take the time to check, periodically, what fees you are being charged and how they compare to other rates on the market. After all, the money in the pension pot is yours, and you don’t want chunks drifting elsewhere without you noticing.
Plus, the more money that stays invested, the higher your likelihood of benefiting from compounding.
Transferring your pension to another provider
If you’re not satisfied with the benefits, fees, or performance of your current pension provider, it could be worth transferring your pension elsewhere.
Remember, even benefits that seem just slightly better than your current provider can make big differences down the line. Equally, you want to make sure you’re not losing benefits or incurring penalties when leaving your existing provider – such as loyalty bonuses, or potential exit fees.
Wealthify doesn’t charge you for transferring to a SIPP with us, and we operate with a low annual management fee of 0.6% for balances below £100,000 — dropping to just 0.3% for any portion above that.
Learn more about transferring to Wealthify via our Pension Transfer page.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.
References:
1: https://moneyweek.com/personal-finance/pensions/billions-estimated-lost-pensions
