According to a study by financial planners, Drewberry, about 47% of 50-somethings have less than £50,000 in their pension pot1. And yet, typically, you’d need at least £260,000 in your pension to have a comfortable retirement2. So how do you get there? Well, you’ll likely need to plan ahead and find ways to boost your retirement pot. Here are some tips to help you reach your retirement goals.
Start planning for retirement early
If you want to make the most of your retirement, it could be a good idea to start planning sooner rather than later. If you’re in your 20s, you may not see retirement as your priority since it’s so far off, and we don’t blame you! But getting your retirement plan ready now could help you maximise your future retirement income. So, what should you start with, you ask? Well, you could check if you’re on top of your national insurance contributions. Typically, as long as you’re working and earning over £166 a week, your company should be paying in your contributions directly out of your salary. To get any state pension, you’ll need at least 10 years’ worth of contributions, so make sure you keep track of your payments. But don’t just focus on your state pension and have a look at your workplace pension too. As things currently stand, at least 5% of your salary goes to your pension and your employer will top-up by paying a minimum of 3%. Throughout your life, you’ll likely get different jobs and pay into various workplace pensions. However, most people will forget about them. In fact, about 1.6 million pension pots have been ‘lost’ in the UK – altogether that’s £19.4 billion which is left behind3! So, it could be worth locating your previous pensions and checking how they’ve been performing. Another thing you could do is consolidate your pensions. That way, you get everything in one pot, and it’ll be easier to manage your retirement savings. And moving your pensions to one place isn’t as difficult as you might think. With digital investing platforms, like Wealthify, transferring your pensions has never been easier! All you need to do is choose how much you want to transfer and the risk level that suits you. You’ll also need to complete the official Pensions Form to ensure the transfer is successful. Visit our transfer page to learn more about transferring your pensions to Wealthify.
Consider paying into a personal pension or SIPP
Another way to boost your retirement savings could be to open a SIPP (Self-Invested Personal Pension). What is a SIPP, you ask? Put simply, it’s a type of personal pension that gives you control and flexibility over your retirement pot. Not only can you make your own contributions, you get to invest your money in a wide range of investments, such as shares, bonds, and property. The good thing about having a SIPP is that you’ll get a ‘gift’ from the government. Every time you make contributions to your pension, you will receive a 25% top-up. In other words, if you’re planning on investing £100 in your SIPP, you’ll only need to pay in £80 and the government will add the remaining £20 to your pot. Over the long-term, this little boost could help your retirement pot flourish. However, the amount you can invest tax-efficiently is limited and currently, to the allowance is set to £40,000 (or 100% of your earnings, whichever is lower) – this is your pension annual allowance and it includes contributions made by you and the government. Anything above may be subject to tax, so make sure you keep track of your pension contributions. If you can’t use your whole SIPP allowance, don’t worry, you may be able to carry it over the next three years, provided you meet the two following requirements. Your earnings will need to be at least equal to the total amount of your contributions, and you’ll need to be a member of a registered pension scheme.
Everything you put in your SIPP is locked in until you reach the age of 55. Once you turn 55, you’ll be able to take up to 25% of your pension money as a tax-free lump sum. But you’ll still be able to make contributions until your 75th birthday, meaning your pension could potentially benefit from an extra 20-year growth.
Opening a SIPP is easy. Robo-investing platforms, like Wealthify, let you start your SIPP journey in just a few taps. And you don’t need much financial knowledge or experience to get started - we’ll do the hard work for you, from building your Wealthify Pension to adjusting your Plan, when needed, to keep it on track. Also, every time you add money to your pension, we’ll automatically add the top-up to your pot and invest it for you.
Think about increasing your pension contributions
If you want to make the most of your retirement, it’s important to keep an eye on your contributions. At the moment, you may not be able to increase how much you’re putting in your workplace pension, and that’s absolutely fine. After all, you may have other financial matters to deal with. However, once your financial situation improves, it could be a good idea to increase the portion you put in your pot. Also, if you’re paying into a personal pension or a SIPP, you could try and put in a bit more. We’re not necessarily talking about big lump sums. If you’re putting £50 a month in your SIPP, you could add an extra £10 if you can afford it. Over the long-term, this £10-difference could significantly impact how much you get at the end of your SIPP journey. For instance, if you invest £50 a month in your SIPP, you could get about £70,686 after 40 years4. Now if you had put £60 a month in your personal pension, you could have ended up with £84,823 – that’s £14,137 extra5! So, as soon as your financial situation allows it, consider increasing your contributions to help your retirement pot grow.
Do you know how much you’ll need in your pension pot for your dream retirement? Our new pension calculator can help give you a good idea of what you might need to save.
4: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £43,905. If markets perform better, your return could be £121,496. Values correct as of 03/07/20.
5: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £52,685. If markets perform better, your return could be £145,795. Values correct as of 03/07/20.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.