Around 25% of Brits are worried that they are not saving enough for a comfortable retirement and fear they need a better pension. On top of this, rising inflation is making it harder than ever to keep up with the cost of living in old age.
Helen Morrissey, senior pension and retirement analyst at Hargreaves Lansdown, has revealed two pension-boosting tricks that you may not know about. Here’s how to take advantage of payments and secure a better pension for your future.
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The secrets to securing a better pension pot
Many Brits are unaware of how to increase their pensions to fund a better standard of living in retirement. The majority of people are restricted to an allowance of £40,000 per year. However, Helen Morrissey says that this shouldn’t stop you from contributing more whenever you can.
She explains that there are two ways some people may be able to pay more into their pension pots each year. If you are able to, this could be a great way to boost your funds and secure a better financial future.
1. Don’t stick to employer minimums!
If you receive a workplace pension, you will probably be aware of employer minimums. These are the minimum payments that you and your employer must make into your pension fund each month. While many people tend to stick to these minimum payments, it is possible to increase your contributions.
Employer minimums are simply guidelines that have been put in place to ensure that all workers receive fair contributions. However, there are no rules around increasing your own pension contributions.
You are free to contribute as much as you like into your pot – up to the £40,000 per year allowance. Helen Morrissey recommends taking advantage of your yearly allowance and contributing as much as you can each year. You can make contributions however you like. Therefore, you may want to consider making larger contributions during times when you have a bit of extra cash.
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2. Carry forward
If you are unable to contribute the full £40,000 allowance into your fund, you could carry the excess into the following year.
Carry forward rules mean that, if you have any unused allowance in any of the last three tax years, you can use this to increase your allowance this year. This is an excellent loophole for self-employed individuals who may have a fluctuating salary.
For example, if, in the previous tax year, you only paid £20,000 into your pension fund, you could receive an extra £20,000 on top of this year’s allowance. Therefore, you could pay up to £60,000 into your pot this year!
Carry forward rules make it possible to increase your contributions when you have the funds available. Consequently, you won’t miss out on any of your pension allowances.
How to keep track of your contributions
Keeping track of your pension contributions makes it easy to know how much of your allowance you have left. A good idea is to make a note every time that you contribute to your pension fund.
You can also use your annual pension statements to keep track of how much you contribute each year. Once you access your pot, your annual allowance will reduce to just £4,000. Therefore, it is important to make the most of your annual allowances while you can!
