Taking time off over the Christmas period can give us a chance to plan for our future and get into good habits in time for the New Year.
According to Hargreaves Lansdown’s Savings and Resilience Barometer, only 38% of households are on track for a ‘moderate’ retirement income.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “There are some simple things that you can do that can really make a difference and give you the confidence you are on track for the retirement you hope for.”
Here are five ideas to get the best from your pension savings:
Rolling ISA savings into a pension
If you are aged about 50 and have savings in an ISA, it might make sense to roll them over into your self-invested personal pension (SIPP).
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Pension contributions attract tax relief from the Government at your marginal rate of income tax, meaning that a £10,000 pension contribution from a basic-rate taxpayer would in effect only cost them £8,000.
For higher- and additional-rate taxpayers, the same contribution would only cost £6,000 or £5,500 respectively.
As an example: Lucy is a higher-rate taxpayer. Her £10,000 SIPP contribution only costs her £6,000 after full tax relief. By the time she reaches retirement, this has grown by 50%, leaving her with £15,000.
She can take 25% (£3,750) of this as tax-free cash, leaving her with £11,250. She is a basic-rate taxpayer in retirement, which means she pays 20% tax of £2,250, leaving her with £9,000. This, added to her tax-free cash, leaves her with a total of £12,750.
If she had opted for an ISA, then that £6,000 contribution would not attract tax relief as it would in a SIPP. It grows by 50% over the same time period, giving her £9,000 – a full £3,750 less that she would have got with her SIPP.
Morrissey said: “Of course, one of the key benefits of saving into an ISA is the ability to access money straightaway if needed, whereas in a pension, it can’t be accessed until age 55 (rising to 57 in 2028). You don’t want to leave yourself short of emergency cash in your quest to boost your pension, which is why it makes sense to do it when you are a bit closer to the age at which you can access your pension.”
Top up your state pension
If your National Insurance record started after April 2016, you will need 35 qualifying years to get the full rate of the new state pension.
You can get a state pension forecast from Gov.uk to see if you are on track to receive a full state pension. From there, you can identify any gaps and make plans to fill them. For example, you should check whether, during the gap in contributions, you qualified for a benefit that comes with a voluntary National Insurance credit such as Child Benefit or Universal Credit. If you were eligible, you can look at whether you can backdate a claim and get the necessary credits.
You can also buy voluntary National Insurance credits to fill any gaps. You can usually do this for the past six tax years, but there is currently an opportunity for men born after 5 April 1951 and women born after 5 April 1953 to plug gaps going back to 2006. The ability to do this expires on 5 April 2025. If you are looking to fill gaps from 2006 to April 2023, then it will cost you £15.85 per week – or £824 per year.
Can you contribute to a loved one’s pension?
If you have used up your own annual allowance (up to £60,000 per year), you can also contribute to the pension of a loved one and boost their financial resilience.
You can contribute up to £2,880 per year to the SIPP of a non-working spouse or child, and they will receive a top-up in the form of tax relief, bringing it up to £3,600.
Consolidate pensions
If you have moved jobs regularly, it can be easy to lose track of pensions. Make a list of where you’ve worked and check to see if you have pension paperwork for each one. If not, contact the Government’s Pension Tracing Service and it will help you find contact details.
Once you’ve tracked your pensions down, it might be worth consolidating them into a SIPP. However, make sure you aren’t missing out on any valuable benefits, such as guaranteed annuity rates, or incurring expensive exit penalties by doing so.
Check you are on track
Everyone has a different idea of what they want their retirement to look like. Checking in on how your pensions are doing from time to time can really take away the fear factor of worrying if you have enough put by.
Use an online pension calculator to get an idea of how much your pensions will give you in retirement and model the impact of contributing more if you are able.
