Your pension is more than simply a long-term saving plan designed to provide the income you need when you have finished working. It is a rewarding investment that can be at the centre of your wealth building plans.
At Continuum we are looking at how to make the most of your pension and build your pension pot faster.
The obvious way to make the most of your pension is to put more into it. Thanks to the governments generous tax concessions, if you are a higher rate taxpayer, it will only cost you 60p for every pound you put into your pension, before your pension fund manager and the power of compound interest get to work. The maximum you can contribute each year is currently £40,000, or your entire income, whichever is the smaller. Also bear in mind, you will usually pay tax if your pension pots exceed the Lifetime Allowance, currently £1,073,100.
You might simply want to look at putting more into your pension, rather than other investments when you are looking at building your wealth.
Reducing the charges you pay on your pension means that more of your money is invested for you. Pension charges eat into your investment returns and can have a significant impact on the amount you end up with at retirement. All pension providers make charges but some charge much more than others.
UK savers with older pension plans pay on average five times too much for their pension compared to low-cost pensions. Your pension charges can usually be found on your annual pension statements or on your provider’s online pension portal, and you can also contact your provider and ask for a breakdown of your pension charges.
If your pension charges are more than 1%, you should probably look at the possibility of transferring your pot to a provider with more focus on building your pension pot for you than digging in it to it for themselves.
Find your forgotten pensions
It is surprisingly easy to lose track of a pension. If you have had several employers in the course of your career or contracted out of SERPS (the State Earnings Related Pension Scheme) in the 80s and 90s, you are probably at risk of having a lost or forgotten pension or two. The Association of British Insurers estimates there’s currently £19.4 billion in lost or unclaimed pensions in the UK, working out at an average of £13,000 each.
However, although they may be forgotten they are not lost. You can contact your previous employers and find the names of the providers or use the government’s Pension Tracing Service.
Make sure you’re invested correctly
Your old pensions may not be well invested. A good pension will offer a wide range of investment funds, investing in different asset types and geographical areas, so you can choose the ones that suit your approach to risk.
Consolidate your pensions
If you have several older pensions, and some which don’t seem to meet your investment needs, you can consolidate out and transferring them to a single modern plan could leave you a great deal better off.
It can mean paying only a single management charge, which can often be lower than that of older pensions and make your retirement savings much easier to manage.
You may also benefit from a wider range of investment options than your current pensions offer.
Get professional advice
Remember that it’s important to review your pension investment choices regularly as you approach retirement.
If you haven’t reviewed your pension savings recently it’s worth taking professional pension advice. At Continuum we can take you through a full pension review and use our expertise to help you take the steps we identify together to make the most of your pension pot. We can help you find pensions that are lost, make the most of pensions that you already have and if you are close to retirement, suggest ways to make your pension savings work harder.
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.
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 tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
The Financial Conduct Authority does not regulate taxation advice.
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