Five easy moves to boost your pension pot by £11,000 – how to give your retirement savings a bumper bonus
PULLING together a savings pot to see you through retirement is daunting – but there are easy ways to boost your pot of cash.
It’s currently estimated you need to amass a sizeable £811,000 to retire comfortably at the state pension age of 67.
Saving the mammoth sum is no easy feat but don’t panic because there are a few simple steps that will help along the way.
In fact, we show how just one change can boost your savings by £11,000 over ten years.
Most people are now auto-enrolled into a workplace pension scheme.
Or if you are self-employed you’ll need to set up you own self-invested personal pension instead.
Either way, it’s important to save for retirement or you could be left struggling.
The full state pension is currently £221.20 a week, if you don’t have any other savings this would need to cover the cost of essentials such as eating and bills, plus any other leisure activities, holidays and socialising you’d like to do.
You don’t need to be a maths whizz to work out that the payment won’t stretch far.
To afford anything other than essentials you will need to have your own cash saved to fall back on.
Here is how you can build up a sum that will see you through retirement…
SWITCH PROVIDER
Simply changing your pension provider can make a huge difference to how much your savings are worth in ten year’s time.
This is because there are big differences in the amount that firms charge for holding your cash.
Pension schemes charge fees each year to cover costs, such as managing your investments and running the platform.
These charges are typically a percentage of your pot’s value.
Seemingly small differences in fees can therefore make a difference when thinking about the large amounts that are saved.
For example, a £100,000 pension pot switched from a product with total charges of 1.5% to a platform where charges total 0.75% (for custody and funds combined) could be worth £11,000 more in in ten years’ time, according to calculations by AJ Bell.
The bigger the difference in charges, the more you stand to get back in your pot.
A pot with charges of 2.4% would be worth an extra £23,318 if moved to a 0.75% provider after ten years and a whopping £41,287 after 15 years, and £65,000 after 20 years.
Charlene Young, pensions and savings expert at AJ Bell, says: “Understanding what you’re paying for your pension is important.
“There are lots of different types of pension, some with different charges for various features and services.
“Generally speaking, the most significant fees will be for the administration of the scheme and for the funds in which the pension is invested.
“Sometimes these are given separately, while some pensions have a single fee covering everything.
“The important thing is to look at whether you’re getting good value for money.
“It’s possible to pay less than 0.5% for both administration and investment combined. “
When it comes to moving your pensions into the new account, it’s just a case of giving the provider your old account details and letting them do the heavy lifting.
Once they have your authority to move the money, the pension providers should be able to communicate between themselves to move the pension assets.
INCREASE CONTRIBUTIONS
The most obvious way to increase your savings pot is to save more. The earlier you start paying money into your pension, the more cash you will have in the long run.
Pension expert at insurer Aviva, Alistair McQueen recommends saving at least 12% of your earnings into a pension.
If you have left it relatively late to pay into savings it’s a good idea to ramp up efforts.
If you can afford to save more, it definitely pays to do so.
Often workplace schemes will match employee contributions in effect giving your free cash to put towards your retirement – the more money you put in, the more you’ll also get from your employer.
Helen Morrissey, head of retirement analysis at investment platform Hargeaves Lansdown, said: “Most employers will contribute the minimum stipulated under auto-enrolment but there are others who are willing to pay in more if you do too.
“This is known as an employer match and can mean you can really boost your overall contribution without necessarily having to put in much extra yourself.”
Tax relief is also applied to payments into pensions.
Basic-rate taxpayers get tax relief of 20% meaning that for every £800 saved, the government pays in an extra £200.
If you’re a higher-rate taxpayer, you can get up to 40% tax relief. It means that £600 saved can get an extra £400.
SALARY SACRIFICE
Some employers give the option of salary sacrifice schemes.
Through these initiatives you agree to take a pay cut with the money instead funnelled towards your pension instead.
This can be particularly useful if the pay cut saves you from paying nudging into a higher rate tax, but will see you pay less tax regardless.
The employer also pays less in national insurance contributions and pay pass the savings on to your pension giving you extra cash for your nest egg.
FIND A LOST PENSION
If you’ve had multiple jobs, chances are that you have more than one pension pot.
There are savings worth a staggering £26.6bn sitting in inactive pension accounts, according to insurance giant Aviva.
The typical lost pension pot is worth around £9,500 and it’s thought as many are 2.8million are waiting to be claimed.
Aviva has a ‘find and combine’ pension tracing, checking and consolidation service that can help you find a pot.
The service takes approximately 10 minutes to complete and checks them for certain valuable or safeguarded benefits and fees.
Users are then presented with their own online pension report.
You can also use government’s online Pension Tracing Service (or call 0800 731 0193) to help track down lost pensions.
It can often make sense to consolidate pots so that you pay less in fees and it becomes easier to check in on investment performance.
Lloyds Bank has a ‘Ready-Made Pension’ for customers of Halifax, Lloyds, and Bank of Scotland.
The product can be used to consolidate multiple pensions and has an annual account fee of 0.3%, or a minimum of £5 a month, ongoing investment charges of up to 0.24%, and a transaction cost of 0.14%.
CHECK INVESTMENTS
Pension cash is invested by your pension firm. Under a workplace pension money is typically funnelled into a ‘one size fits all’ default fund.
However, if your are younger you can generally afford to take more risk with your investments. The theory is that you may have some bigger short-term losses but these should be balanced out by bigger gains over time.
Or someone older may want to switch into very low-risk options.
Managing investments is an intimidating task, but even just checking in with your pension performance each year should give you an idea of what your hard-earned savings are doing.
You can speak to a financial adviser about your options if you are not happy and thinking about switching out of a default fund.
How do I consolidate my pension?
IF you have several workplace pensions that you're no longer paying into, you might be better off consolidating them into a single pot.
There are several advantages to this.
The first is that by having your savings all in one place, you’ll only pay one set of fees.
You can also choose which pension provider you want to transfer the different savings to, so you can pick the best one for you.
It also makes it easier to keep track of your money.
You might want to move all your money to whichever of your existing pots has the best fees, or you could move it all to your current employer pension (if you have one).
Alternatively, you may wish to move money to a private pension or use a consolidator service, such as Pension Bee, Aviva, or Wealthify.
Make sure you compare and contrast your options carefully so that you’re picking the best home for your savings.
You’ll need to look at fees but also might want to consider the investment options available.
If any of your pots are over £30,000 you’ll need to get independent financial advice, but even if you have lots of smaller pots you should consider speaking to an independent financial advisor (IFA).
You can use Unbiased or VouchedFor to find a recommended advisor near you.
Also ask whether you’ll be charged a fee to exit your existing provider and to join your new provider, plus whether the age at which you can access your pension is different – for most people this is currently 55, but is set to rise to 57.
You also need to ensure the pension you’re leaving doesn’t come with valuable added perks, or you could lose out.
Stay alert for pension transfer scams as fraudsters often target people transferring their pension with promises of investments that are too good to be true.