If your pension is not working as hard as yourself, you need to follow the tips provided here to give it a lift.
If you have bills and other financial commitments to think about, it is not always easy to find enough money for your pensions. Still, it can be done, and the sooner you start acting, the more you are likely to benefit.
Try the following 6 simple things if you have a defined contribution pension:
- Use Pay Rises as an Excuse for Saving
If you are having a hard time paying as much as you would like into your pension, there’s a simple way you can save more. The first step is to pay in what you are able to afford, and once you get a pay increase, direct part of it to your pension. If you do that, you will not become used to spending money that’s meant for your pension and you can still benefit from part of the raise going to your bank account.
- Pay in More Once a Regular Spend Ends
You can try a move similar to the one above every time a regular expenditure comes to an end. For instance, if you finish paying off a car loan, you can use the extra money to pay into your pension plan. Even a small increase such as this can make a big difference in the long run. If you need to reduce your outgoings in the future, you can reduce your contributions if need be.
- Maximizing Employer Contributions
Employers sometimes increase the amount they pay in if you increase your contributions up to a specified limit. It means that when you put in an additional 1 or 2 percent of your salary, your employer may also pay in more. Ask your employer for details of whether they contribute to your pension plan and by what amount.
- Pay in a Lump Sum
If you suddenly come into some money, you can quickly and easily give your pension a boost by paying a lump sum. The government will also top it up with a tax relief up to a certain limit as with other payments in your plan.
So, if you received a bonus from work and paid £1,000 of it into the pension plan, for instance, the government would add at least £250 in tax relief if you pay the basic rate and may even potentially claim back more if you are an additional or higher rate tax payer. How you are treated under tax laws depends on your specific requirements and could be subject to change.
- Wait Longer Before You Break into Your Pension Pot
The longer your pension is left untouched, the longer it has to potentially grow. If you have already had the pension for a long time leaving it invested for several years more can really make a difference. That said, it is always to keep in mind that there aren’t any guarantees that your investments will actually grow. Investments can either rise or fall in value and you might not get back what you originally paid in.
Working for longer is obviously not for everybody. Still, if you have no problem doing it, it can be a handy option to have.
- Be Selective When It Comes to Investment Options
Where your pension is invested can have a major impact on what you get back after retirement. For instance., if your scheme has the ‘default’ investment option whereby money is invested automatically once you join the scheme, it might not necessarily be the best option for you. It is therefore a good idea to look at the investment fund or funds that your money is invested in.
If you opt to move to a different fund or funds, always keep in mind the fact that there’s never any guarantee that the new fund or funds will perform better than your old one.
The exact route you will take to make changes to your pension varies depending on the type you have. Still, with most modern schemes, it is possible to adjust online with just a few mouse clicks. Speak to your employer or check the policy information to find out whether that’s the case with yours.
Keep in mind that the higher the amount of money you pay in now, the longer it potentially has to grow. The compounding effect (where the returns generated by the pension may, in turn, earn further returns) may make a difference over the long term.
The 6 tips provided here are for those with a defined contribution pension i.e. schemes where your pension pot is built up based on contributions from you and/or your employer as well as any investment returns. The value of your pension may go up or down like with most investments, and you might not get back as much as you originally paid in.