If you don’t remember the last time you reviewed your pension savings, you could find yourself short of funds in retirement.
Indeed, research from Aviva has revealed a worrying trend of pension savers who “set and forget” their retirement savings[1].
Because your pension is typically invested for decades, even a small change to the “default” settings could lead to the value of your savings at retirement being worth thousands of pounds more.
If you have fallen into the trap of neglecting your pension, read on to find out how you could rectify matters.
Maximise your contributions and profit from tax relief
Saving just 2% extra into your pension from age 22, could potentially increase your final pension pot by £56,000.
If you’re paying into your workplace pension through auto-enrolment, you may be contributing the default minimum amount. Under current rules (2024/25) the minimum employee contribution is 5%. Your employer will contribute at least another 3%.
Depending on when you started saving, how close you are to retiring, and other savings or pension provisions, this may be less than you need to fund your desired retirement lifestyle.
Pensions are one of the most tax-efficient ways to save.
Your Annual Allowance is £60,000 (2024/25), this is how much you can normally contribute to your pension each year while still benefiting from tax relief and without being subject to a charge.
20% tax relief is automatically applied, so a £100 contribution to your pot costs you just £80.
If you’re a higher- or additional-rate taxpayer, you can claim extra relief through your self-assessment tax return.
Check your retirement age is set correctly
Working for two extra years could increase your total retirement pot by nearly £19,000.
Chances are, you have at least a rough idea of when you hope to retire, but have you informed your pension provider?
If you haven’t set a retirement date with your provider, they will usually set it at State Pension Age. However, there are two key reasons why it’s important to ensure your retirement date is accurate:
- Your pension provider will send you annual statements, which will include a projection of the value of your pension at retirement. If you intend to retire sooner, you could find your pension savings fall short.
- To limit the effects of short-term volatility, pension funds often automatically reduce the amount of risk your investments are exposed to as you near your retirement date. So, setting your desired retirement date could help you manage risk.
If you’re unsure what retirement date your provider’s set for you, check your account details online, or get in touch and we can help.
Review where your funds are invested
Securing an extra 1% return on your fund, could deliver an additional £57,000 by the time you retire.
Ideally, your pension should be invested to align with your long-term goals and risk profile. If your workplace pension contributions are being invested in the default fund, this may not be appropriate for you.
When you first start to invest in your pension, there are usually decades before you’ll retire. With plenty of time to recover from any short-term volatility, you may feel you can afford to take more risk with your investments and so potentially profit from greater returns.
Depending on your plans, as your retirement date approaches, you may wish to consolidate the gains you’ve made and move your savings into a lower-risk fund.
Get in touch
If you’d like to discuss your retirement plan and ensure your pension investments are aligned with your long-term goals, please get in touch.
Email info.wp@titanwh.com or call us on 0800 048 0150.
Please note
The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). 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 results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
The Financial Conduct Authority does not regulate tax planning.
[1] https://www.aviva.com/newsroom/news-releases/2023/10/rise-of-the-triple-defaulter-who-set-and-forget-their-pension-choices/
[2] https://www.pensionsage.com/pa/Lost-pension-concerns-renewed-as-50bn-at-risk-of-being-left-behind.php
