Six ways to spring clean your pension
The nights may still be long but the end of the tax year is fast approaching – so now is the ideal time to think about your pension. Here are six steps to refresh your pension.
1. Plan ahead
The most effective way to plan for your retirement is to think of it in terms of the lifestyle you aspire to and the retirement income you will need to achieve that.
Consider what your monthly expenses are now and estimate what they will be at the time you retire Ask yourself: do you expect to have paid off your mortgage before retirement? Do you think you want to downsize?
2. Calculate how much your pension is worth
This is a calculation that some find scary but there are several pension calculators online and you can find out what you’ll receive from the state here. Plus, your current private pension provider should be sending you an annual statement.
3. Get pension-savvy
You don’t need to re-train as a financial adviser to plan your pension but you do need to keep track of your pensions.
As James Davis, Independent Financial Adviser at Pension Works, points out: “The problem when it comes to pensions is that few of us keep tabs on the schemes we have paid into.”
The average worker in Britain today has six jobs in a working lifetime and the government estimates that by 2050, £50 million will be left in unclaimed pension pots.
4. Give yourself a (sort of) pay rise
As James explains, “if you are in an occupational or employer scheme and up your contributions, your employer may agree to match it – effectively giving you a small pay rise. Best of all, when you put money into a personal pension, the taxman also chips in.”
You have until 5 April 2018 to make the most of this year’s tax-free allowance, currently capped at £40,000. “And if you are a basic-rate taxpayer,” James adds, “for every £1,000 you put in the taxman adds another £250. Plus, if you pay the 40% or 45% tax rates, you can get even more through adjusting your tax coding or as a rebate from HMRC.”
5. Take little steps
It may be a stretch but small increases in contributions can go a long way. Because pensions benefit from compound interest, the sooner you get money into a pension pot the more value it will be worth at retirement. As James points out, even additional contributions of just 2% of your annual salary can add up to thousands over 10 or 15 years.
This should not be a one-off exercise. While it is better to do it once than not at all, you should always keep an eye on your pension fund and repeat the five steps above. At the very least it is worth review once a year.
6. Repeat
This should not be a one-off exercise. While it is better to do it once than not at all, you should always keep an eye on your pension fund and repeat the five steps above. At the very least it is worth review once a year.
Contact Pension Works to see how they can help with your retirement planning.
Telephone: 0808 164 2664
Email:[email protected]
