If you’re approaching retirement and looking to increase your pension savings, there are effective strategies you can implement now to improve your financial security. Boosting your pension pot before retiring can make a significant difference to your quality of life during retirement. This guide covers practical tips to help you make the most of your pension contributions and grow your retirement funds.
1. Maximise Your Pension Contributions
Increase Workplace Pension Contributions
If you’re enrolled in a workplace pension scheme, consider increasing your contributions. Many employers offer matching contributions, meaning if you contribute more, they will too—effectively giving you free money for your pension.
- Tip: If your employer offers to match up to 5% of your salary, try to contribute at least that amount to double your investment.
For more insights on managing your pension pot, check out our article on What to Do with Your Pension Pot When You Retire.
Take Advantage of Tax Relief
Pension contributions are eligible for tax relief, which means the government tops up your contributions based on your income tax band:
- Basic rate taxpayers: 20% tax relief
- Higher rate taxpayers: 40% tax relief
- Additional rate taxpayers: 45% tax relief
For every £80 you contribute, a basic-rate taxpayer’s pension receives £100. Higher and additional rate taxpayers can claim extra relief through their self-assessment tax return.
2. Make Additional Voluntary Contributions (AVCs)
Boost Your Savings with AVCs
AVCs allow you to contribute extra funds to your workplace pension scheme. These contributions benefit from tax relief and help increase your pension savings more quickly.
- Tip: If you’re close to retirement, you might benefit from salary sacrifice schemes, which reduce your taxable income and increase your pension pot.
Consider a Personal Pension
If your workplace scheme is not sufficient, you can open a Self-Invested Personal Pension (SIPP) or a stakeholder pension. These pensions offer greater flexibility in choosing investments, including stocks, bonds, and funds.
3. Delay Taking Your Pension
Why Delaying Can Help
If possible, delay taking your State Pension or private pension. By doing so, your pension pot continues to grow, and in the case of the State Pension, you could receive an increased payment when you do start drawing it.
- Example: Delaying the State Pension by one year could increase your payments by 5.8% per year.
For more information, visit the official State Pension page.
4. Consider Lump Sum Investments
Use Inheritance or Bonuses Wisely
If you receive a lump sum, such as an inheritance or bonus, consider investing it directly into your pension pot. This approach is particularly effective if you’re not close to reaching your pension contribution limits.
- Annual Allowance: You can contribute up to £60,000 per year or 100% of your earnings, whichever is lower, while benefiting from tax relief.
Beware of Tax Implications
If you plan to contribute a large sum, ensure you don’t exceed the Lifetime Allowance, which is currently £1,073,100. Exceeding this allowance could result in additional tax charges.
5. Invest Wisely to Grow Your Pension Pot
Diversify Your Investments
Many pension schemes allow you to choose how your pension funds are invested. You can opt for a higher-risk, higher-reward strategy if you have several years until retirement. As you approach retirement, shift to safer investments to protect your capital.
Consider Professional Advice
If managing your pension investments feels overwhelming, consider speaking with a financial advisor. Our guide on Do You Need a Financial Advisor for Retirement Planning? offers a detailed look at the pros and cons.
6. Cut Expenses and Reinvest Savings
Trim Your Budget
Identify ways to reduce your expenses and redirect these savings into your pension pot. You could:
- Switch to cheaper service providers for utilities or insurance
- Cancel unused subscriptions
- Shop smartly by using cashback offers and discounts
Check out our Smart Spending & Deals section for more tips on smart spending.
7. Review Your Pension Regularly
Keep an Eye on Performance
Review your pension statements regularly and adjust your investment strategy as needed. If your investments are underperforming, consult with your pension provider or a financial advisor to explore better options.
Consolidate Pensions
If you have multiple pension pots, consolidating them into a single scheme might reduce fees and simplify management. However, seek professional advice to avoid losing valuable benefits from existing schemes.
Conclusion: Secure a Comfortable Retirement
Boosting your pension savings before retiring requires a strategic approach, including maximising contributions, investing wisely, and managing expenses. By implementing these practical tips, you can build a healthy pension pot that provides financial stability and allows you to enjoy your retirement without money worries.
