Tips to boost your pension
Why would you want to boost your pension? An article in the Times newspaper on the 15th of November offered a very clear and compelling reason.
It calculated that if you started at the age of 22 and continued paying the minimum 8% into a workplace pension scheme, it would produce a pension pot valued at £180,000 once you reached retirement age at 65. If that sum were used to buy an annuity, you would receive an annual income of around £12,800.
That falls somewhat short of the national minimum wage of £14,942 per annum – though you might also add to your income the value of your State Pension (which is currently £168.60 a week or £8,767.20 a year).
So, how can you boost that figure?
If our example is based on saving the minimum amount each month into your pension fund, you might boost your pension by saving more.
One way of doing that is to use part or all of any pay rise to increase your monthly contributions.
Alternatively, if you have been making regular payments – on a car loan, for example – when these come to an end, simply switch what you are paying in to increased contributions to your pension.
If you receive a windfall – e.g. a bonus from your employer – this can be paid into your pension fund. It also takes advantage of the tax-free concession offered by HMRC, so that a bonus of, say £800, is automatically topped up to £1,000.
Consider how your pension scheme invests the money you are paying in – some investments are likely to be better earners than others.
It may be possible to switch to another fund or funds which offer different investment choices – although there is no guarantee, of course, that they are going to perform any better.
Carry on working
Once you’ve reached retirement age and depending on your skills and talents, you can simply continue to work – either in your current job or by taking another. These days, there is no compulsory retirement at age 65, so you are not going to be forced to give up work.
If you stay with your current employer, you may continue to pay into your existing workplace pension scheme – and increase the value of the pot you eventually have from which to drawdown.
Defer your State Pension
If you continue to work, of course, you may also be able to defer taking your State Pension. This also increases the amount you are due when you do decide to draw it.
Currently, your State Pension may increase by 1% for every five weeks you defer drawing it.
Self-invested Personal Pensions (SIPPs)
Until you are 75 years old, you might choose to pay into your own Self-invested Personal Pension.
Your contributions continue to attract the tax-free allowance. You can pay in up to £40,000 a year, or all of your income if you are earning less than £40,000 annually. Plus, you can contribute a maximum of £2,880 a year even if you are not working – all the while earning the valuable tax relief (of 20%, or whatever percentage of income tax you pay).
The data used in this article is correct at the time of writing.