As you approach retirement, it’s essential to ensure that your pension is working as hard for you as possible. With the right strategies and advice, you can enjoy a more comfortable and secure retirement. This article will provide you with valuable tips to help make the most of your pension.
Understand your pension options
You may have a combination of workplace pensions (possibly both Defined Benefit and Defined Contribution pensions) and personal pensions, plus you’ll likely be eligible for some State Pension. The first step in maximising your pension is to understand what type of pension you have and the different options available to you. Each type of pension has its own rules and benefits, so it’s crucial to know what you have and how they work together.
Top tip: Find out the type of pension you have by looking out any statements or documents your pension company has sent you. You can also find details on your State Pension, when you can start receiving it and how much you’ll get on Gov.uk
Work out your pension pot value
Take the time to review your pension pot and its current value. This will give you a clearer picture of your retirement savings and help determine if you need to make any adjustments i.e. you may wish to change your pension contributions or where it’s invested. Consider factors such as when you expect to retire, how much your monthly essentials will be and any big expenses you’re anticipating making.
Top tip: Use our pension calculator to work out how much your pension could be at retirement. It gives you a figure based on your age, when you plan to retire, how much your pension is currently worth, future contributions and investment performance.
Maximise your pension contributions
If you’re still working, you should consider how much you contribute to your pension. The more you contribute, the larger your pension pot is likely to be when you retire. Now could be a good time to take advantage of any employer contributions and tax relief available to you. Even small increases in contributions can make a significant difference over time.
Did you know you can add lump sums to your pension and benefit from tax relief on them (subject to certain limits)? For example, let’s say you have £10,000 sitting in a low interest savings account and you don’t need immediate access to it. If you added it to your pension, it would be boosted to £12,500 (for someone paying income tax at 20%). If you pay tax at a higher rate, you could receive even more. Obviously this is just an example and shouldn’t be seen as a recommendation. And please remember that tax relief and the impact of tax depends on your circumstances including where you live and can change in the future.
Top tip: Try our pension calculator and check how much impact even a small monthly increase has on your pension pot value.
Review your pension investments
A lot of pensions are invested in a range of assets, such as stocks, bonds, and property – and these all carry varying degrees of risk. It’s essential to regularly review where your pension is invested and ensure it matches with your risk appetite and retirement goals.
It’s likely your attitude to risk will change at various stages during your life. For example, when you first start saving into your pension you may be willing to take more risk as you want it to grow but also, should it drop you have longer to improve on the poor performance. On the other hand, some people start taking less risk as they get closer to taking their money. This is to help reduce any potential sudden drops in value at what could be a very critical point. However, it’s not always as simple as this and your choice of investment should be tailored to your circumstances.
Top tip: Familiarise yourself with the investment options in your pension. Think about how long you expect your pension to be invested for (remember if you move into drawdown it will remain invested) and consider how much risk you’re currently willing to take. Remember, your investments can fall as well as rise in value and you may not get back what you put in.
Make a plan for how you want to take your money
When it comes to accessing your pension, you have several options – two of the most popular are annuities and drawdown. An annuity provides a guaranteed income for life. This means you’ll receive a regular payment (you choose the frequency) for the rest of your life, no matter how long you live. This is a popular option for those who value the security and certainty with their income.
Drawdown on the other hand allows you to make flexible withdrawals from your pension as and when you need them. Your money also remains invested until you withdraw it all or decide to move it elsewhere. Of course this means it could go up or down in value. Drawdown also allows you to pass on any money that’s left over to your loved ones. It’s worth remembering although your pension doesn’t currently form part of your estate, this rule will change in April 2027. This means that after 6 April 2027 any money left in your pension when you die will be added to your estate for Inheritance Tax purposes.
Top tip: That’s a very quick snapshot on just two of the options. There are other options and there are many more pros and cons of each. So the top tip for this one is to find out more about each option and start to think about what’s best for you by visiting our accessing your pension webpage.
Get professional advice
Speaking to a financial adviser can make a huge positive difference to your retirement. Chat with a Sandringham adviser today and they’ll give you straightforward, easy to follow advice, leaving you clear on how each decision affects your retirement plans.
This can help grow your pension, make tax savings, leave more for your loved ones and give you peace of mind that an expert is looking after all this for you.
To speak to one of our advisers and start maximising your pension, simply click the button below.
