5 Ways To Increase Your Pension
How Much Do You Need to Retire?
Before working out how to increase your pension fund, it’s important to understand how much you actually require. Retirement is a time to look forward to for most, a time to relax, try new hobbies and enjoy the money you’ve spent your life working hard for. It’s surprising then, that only 23% of people are confident they know how much money they need to retire on, according to the Pension and Lifetime Savings Association (PLSA).
In response to their survey, the PSLA detailed benchmark amounts retirees will require, based on their lifestyle:
- Minimum standard of living = £10,000 for singles or £15,000 for couples
- Moderate standard of living = £20,000 for singles or £30,000 for couples
- Comfortable standard of living = £30,000 for singles or £45,000 for couples
The difference in the standards of living comes down to access to luxuries as well as security and financial flexibility. Upon assessment, you may be inspired to increase your pension pot.
Keep in mind that the current UK state pension (2020/21) is £9,110.40. This is for the full pension. Check your state pension forecast here to discover when you can access it and how much you’re likely to receive.
How Much Do You Need to Increase Your Pension By?
Before taking steps to increase your pension size, having knowledge of how much currently sits in there is important. This may sound obvious, but many people hold pensions they are unaware of. With the average person holding seven or more jobs throughout their career, it’s easy to lose track of your pensions.
In fact, the Association of British Insurers estimates that around £20 billion is “lost” in unclaimed pensions. They split these between 1.6 million pots, which equates to about £13,000 per pension. In a Self Invested Pension Plan (SIPP), with an average performance of 6%, that £13,000 could turn into £23,000 in just 10 years. What could you do with £23,000?
How to Increase Your Pension
Here are our 5 top ways to increase your pension fund. It is possible to use a combination of them all.
1. Defer your pension
Deferring your state pension is one of the easiest ways to increase its size. As a matter of fact, you don’t have to do anything other than simply not claiming it. For every 52 weeks you defer your pension, it’s value will increase by just below 6%. There are certain stipulations, so be sure to check the government website or speak to your financial advisor for more information.
2. Salary sacrifice
Reducing your take home pay may sound unattractive, however, the benefits are plentiful. Between yourself and your financial advisor you should be able to work out how much you need each month and as such, how much you can afford to sacrifice. A salary sacrifice sees you giving up a chunk of your salary, of which your employer adds to your pension along with their usual contributions. This is a great way to seek tax relief through your pension contributions. Furthermore, decreasing your salary can put you into a lower tax bracket and thereby garner further savings (please note we are Financial Advisors not tax specialists).
3. Increase contributions
The most obvious way to increase your pension fund is, of course, to increase your contributions. This doesn’t necessarily mean giving up elements of your current lifestyle or cutting back too much. Instead, look for opportunities to put away more money. For example, after a pay rise or once you’ve paid off your car. Paying a lump sum into your pension fund after selling an asset or receiving a bonus is a great way to boost your fund. Increasing your monthly contributions even by a small amount can have a huge impact over time.
This example shows how additional pension contributions can drastically increase your pension size.
Numbers are calculated using a 6% return rate with a starting balance of £225, which is the average UK monthly contribution.
4. Find and consolidate pensions
As mentioned, £20 billion worth of pensions are sitting unclaimed. Is there really an easier way to increase your pension than to find pensions you’d forgotten about? Finding your pensions can be facilitated through the government’s pension tracing service. If you have some details of your pension (e.g. provider, policy number or pension scheme name), we are also able to help you find your lost pensions. Once we’ve found all your pensions, we would recommend transferring them into a SIPP or QROPS, depending on your personal situation. Both of these financial tools allow you and your financial advisor to choose shares, funds and investments to ensure your pension is growing as best it can.
5. Financial advice
The above brings us on to our fifth and final point. Make use of financial advisors. They are industry professionals with years of experience and can facilitate the growth of your hard earned money. As it stands, your pensions are more than likely grouped with thousands of others in an underperforming fund. It’s time to change that and have your money working for you. An experienced financial advisor will work with you, to your level of risk, to your future plans and to your lifestyle.
Get in Touch
Of course, this advice is generalised. Everybody and their pensions are in different situations, so getting tailored advice is extremely useful. To speak to an experienced expert on how to increase your pension, get in touch today.