How to be a pension millionaire

Thanks to house price inflation, being a millionaire may not be as unusual as in times gone by.

But having your wealth tied up in bricks and mortar is not very useful when it comes to paying the bills – or with enjoying your retirement. But the surprising thing is that it could be easier than you think to be a pension millionaire.

At Continuum we are looking at ways to help ensure your retirement can be everything you’ve planned for and more. 

Who wants to be a millionaire?

Putting a million pounds into your pension pot sounds like an impossible dream. But with the rising cost of living, you might actually need that kind of money to enjoy your retirement to the full. There are a growing number of pensioners who are reaching their century. You could have a retirement that is very nearly as long as your working life.

Why a million? The lifetime allowance for most people is £1,073,100 in the tax year 2022/23 and has been frozen at this level until the 2025/26 tax year. If your pension pot grows larger than your allowance, you could find yourself paying substantial tax penalties on your surplus cash. 

So how can you actually do it?

Start early…

To save up over £1million for retirement you need to start saving early and have a decent income. 

So, for example, if you’re 25 that means you have 43 years until the proposed UK Government state retirement age of 68. 

Start later than 25, perhaps because you will need to prioritise getting on the housing ladder or starting a family, and you will need to pay in (and probably earn) considerably more.

Make the most of the potential

Make the most of automatic enrolment.

If you are an eligible employee with pre tax earnings of at least £10,000 per year you will almost certainly be subject to automatic-enrolment, which simply means that your employer has to put you into a workplace pension scheme. They will have to contribute a minimum of 3% of your monthly earnings to the pension pot, while you will need to pay in 5%.

But this is the minimum. Some employers are willing to match your contributions if you put in more from your salary each month. They benefit – the amount they contribute isn’t taxed nor does it have National Insurance deducted from it. You benefit, with what is basically free money from your employer to boost your pension.

It’s worth checking with your employer if they’re willing to do this as it could help you put away hundreds or thousands of pounds extra a year.

Make the most of tax relief

A consideration for some people could be to have a personal pension on top of workplace pension. As a basic rate taxpayer, earning between £12,571 and £50,270, you will get tax relief from the government on your personal pension contributions.

The taxman adds a percentage of your contribution to your pot. For every 80p you contribute, he will add 20p which means this contribution becomes a pound by the time it reaches your pension pot. Note the annual allowance for contributions is £40,000.

If you earn between £50,271 to £150,000 you receive 40% tax relief, anyone earning over £150,000 (additional rate taxpayers) get 25% extra from the taxman meaning 45% tax relief.

Tax rates applicable for 2022/23 tax year.

(The Income Tax additional rate threshold (ART) will be reduced from £150,000 to £125,140 from 6 April 2023 as announced in the Autumn statement).

Make the most of your state pension

You can use your state pension alongside personal and workplace pension savings to fund your retirement.

You need to have paid National Insurance Contributions (NICs) for at least 10 years to qualify for the basic state pension entitlement however you usually need 30 qualifying years of national insurance Contributions to get the full basic state pension.

To receive the full New State Pension amount of £185.15 per week, you will need to have paid NICs for at least 35 years.

But you can fill gaps in your NI record which means you can make yourself eligible for the higher payment later on. You can check what you’re state pension entitlement is by going on the government’s website.

Make the most of compound growth

Personal pensions grow with what’s known as compound growth– when you earn interest not just on what you save, but on any growth you have already made. Over the years it adds up and builds potential growth.

It might be tempting to dip into your personal pension pot once you reach the age of 55, when you are allowed to access the cash, but leaving it to potentially grow may mean many more years for compound growth to work.

Make the most of your investment

Your pension pot is an investment, not just a savings plan. Pension Providers invest in various ways such as stocks, bonds, real estate, or other assets.

Understanding how your pension is invested and your own attitude to risk can be key to maximising its growth.

Help to become a pension millionaire

Becoming a pension millionaire may not be easy for everyone, but with the right help, it might be in reach for you.

You can find the help you need simply by calling us at Continuum. We can start with a detailed pension forecast to see how your pension is currently shaping up – and work out ways to build the pension poot you want.

The sooner you start the better. Why not call us today.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.

The value of your pension can go down as well as up and you may not get back the full amount invested.

A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.

The levels, bases and reliefs from taxation are subject to individual circumstances and may be subject to future change. 

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.

Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.

Book a Meeting

If you want to get a free consultation without any obligations, fill in the form below and we'll get in touch with you.

    Sign-up to our free weekly online publication

    How can we help you?
    Scan the code