Our top 10 tips offer the potential to transform your savings including:
1. Stop Procrastinating
The earlier you start saving, the greater the impact will be. Someone earning £25,000 per year at age 25 who starts a pension with an 8% contribution can look forward to retirement income of around £7,500 per year at age 65. Delay 5 years and the figure drops to around £5,300.
It is easy to put pension savings off because you don’t feel you can save meaningful sums rights now. However, every penny helps and behavioural economics tells us people who start saving early, even small sums, are more likely to save more later on when their finances allow.
Put part of any pay rise into long term savings. What you’ve never had, you don’t miss.
2. Don’t turn down free money
All companies must now offer a pension scheme under auto-enrolment. Employers must make contributions into these schemes on your behalf so opting out is effectively giving up additional pay.
Always join a Company Pension Scheme if you can. Pay in as much as you can to obtain any additional matching employer contributions – its free money.
3. Set up Salary Sacrifice
Salary Sacrifice is where you agree to exchange part of your salary in exchange for a range of benefits one of which can be contributing to your pension. Your employer pays the amount you decide to sacrifice from your gross salary into your pension. This results in you saving income tax on the amount sacrificed.
This can also be an option for business owners too.
4. Be a Smarter Investor
How much you pay into your pension is just one of the factors that determine your eventual income in retirement. Investors are often far too conservative, given the long-term nature of saving for old age.
When you are younger and have a long period until your retirement date, you can afford to take more risk with your investments, especially if you are investing monthly. Investing in equities is likely to give you the best long-term returns. However the closer you get to retirement, the more you should put into other assets such as cash, fixed interest and property.
5. Don’t just save into a Pension
For most people, the best approach for long-term savings is a combination of pensions and ISAs. Pensions provide the benefit of tax relief which gives savings an immediate uplift but ISAs can give a tax free income in retirement. You should also try and repay debt as quickly as you can. Other options to help fund your retirement can include buying or enhancing your home with the intention of down-sizing later on. Finally a number of people fund their retirement via the sale of a business although this should not be the only plan.
6. Ditch under-performing investment funds
Poor performance from investment funds is one of the main reasons people are dissatisfied with their pensions. Keep a close eye on your pension fund and if its failing to meet the annual grow rates in order to hit your savings target, ask your adviser why.
7. Retire Later
Annuity providers offer rates based on how long they expect you to live in retirement, so retiring later should net you a better deal. Our 25-year old saver on target for £7,500 per year at age 65 could delay retirement for 5 years and see their income figure jump to £10,300.
The same applies to your pension from the State. Wait longer to claim your State Pension benefits and you are entitled to enhanced rates. A year’s deferment works out as an increase in your state pension of just under 5.8%.
8. Increase your contributions
Adding just a bit to the amount you put away each month can really mount up. For example, assuming a real return of 3.5% per year (after charges and inflation), a 30-year old paying an extra £50 per month net into their pension until the state pension age of 68 would boost their pension pot by £57,000 in today’s money.
9. Get a State Pension Forecast
State Pension benefits may not be sufficient to deliver the standard of living you hope for in retirement, but they are a good start. Find out what State Pension entitlement you have already by requesting a forecast from the Department for Works & Pension. If you have a gap, consider making Class 3 voluntary National Insurance contributions because this means the Government takes on the risk of inflation and you living too long.
10. Get Expert Help
An Independent Financial Adviser will review your existing pension arrangements. They can also provide projections of benefits to your retirement age, reviewing your existing funds and contracts to ensure they are still meeting your objectives and requirements. Whilst there is a cost, if the Financial Adviser can add value, it is a service worth paying for. Using a car analogy, few people tend to buy the most basic model of car, but choose additional features at a price usually worth paying for.