In recent months, many households have had to tighten their belts. When times are tough, it can be hard to find enough money to save for the future.
If you want to ensure that you have enough for a comfortable and sustainable retirement, it’s important that you save enough into your pension. Read on for three easy ways to help you to boost your contributions.
1. Think of your contributions as investments
It might sound unusual, but research has shown that one of the easiest ways to boost your contributions is to change the way in which you think about them.
According to a behavioural study by Scottish Widows, published in Corporate Adviser, when participants thought about their pensions as “investments” rather than “savings”, they contributed significantly more. This small change of language resulted in a 34% increase to the amount that they were willing to put aside for the future.
The reason for this is what psychologists call “nudge theory”, which essentially involves using positive reinforcement to change people’s behaviour. The more positive connotations of “investments” helps to encourage people to make larger contributions than they might already be doing.
Of course, this is only a small change but altering the way that you think can help you to boost your pension contributions.
2. Ensure that you’re using the most of your Annual Allowance
In any tax year (6 April to 5 April) you can receive tax relief from the government on your pension contributions up to a limit, known as the “Annual Allowance”. In the 2021/22 tax year, this limit is £40,000, or 100% of your pensionable earnings, across all of your pension schemes.
The amount of tax relief that you can receive is determined by how much tax you pay. If you’re a basic-rate taxpayer, then for every £100 you contribute to your pension, the government will top it up with an extra £25 tax relief.
Furthermore, if you’re a higher- or additional-rate taxpayer, you may be able to claim back extra tax relief through self-assessment when paying into a personal pension.
This tax relief can be a useful way of topping up your pension contributions, which is why it’s important that you make the most of your allowance.
You can usually carry over any unused allowance from the previous three tax years. For this reason, you may want to check your recent contribution history to see if you have any more allowance you can use. This can help you to grow your pension more effectively.
If you want to gain the maximum benefits from tax relief while navigating any potential tax issues, then you may benefit from seeking professional advice. Working with an adviser can help to ensure that you grow your pension in the most tax-efficient way without falling foul of any tax pitfalls.
3. Increase your workplace contributions
In 2012, the government introduced automatic enrolment into workplace pensions for all employees, to help more people save for retirement.
Unless you chose to opt out, the minimum contribution for your workplace pension is 8%. Of this amount, you typically have to pay 5%, which is then topped up by a further 3% from your employer.
If you want to boost your contributions, one of the best ways to do so can be to increase the percentage of your salary that you contribute into your workplace pension scheme. An increase of only a few percent can add up to a significant amount over time, especially if you factor in the effects of compound interest.
One of the benefits of saving for retirement in this way is that, since the money is taken out of your paycheck before you even have the chance to see it, you won’t miss its absence.
Furthermore, another benefit of increasing your workplace pension contributions is that some employers will offer to increase their own contributions in line with yours. While this is often only up to a point, this can potentially double the benefit.
By maximising your employer’s contribution, you can make a significant increase in the size of your pension in the long term. However, it’s important to bear in mind that not all employers offer this benefit so make sure to check with yours to see if they do.
Get in touch
If you want to grow your pension in the most effect way, get in touch. Email email@example.com or call us at (0207) 808 4120 to find out more.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.