If, like the rest of us, you one day plan to retire, it’s important that you have a strong pension plan in place. Typically, higher incomes come with better pension plans while lower earners are left with smaller pots.
For this reason, many couples wind up relying on the highest earner’s pension for financial support during retirement. Although this may seem like a harmless plan, relying on just one pension can become a big problem in the event of a separation.
While no one likes to plan for the worst, you could prevent yourself and your partner from future financial woes by securing two strong pension pots. Here’s how you can boost your pension and prevent financial heartache.
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One-third of people rely on their partner’s pension pot
Recent research from Hargreaves Lansdown reveals that one-third of people plan to rely on their partner’s pension for retirement. This group includes 23% of men and 39% of women.
Out of those who say they would rely on their partner, the majority are aged between 35 and 44 years old. Those aged between 18 and 24 do not feel they’ll be as likely to rely on their partner during retirement. This difference may be due to the fact that the younger population are yet to face their most financially challenging years.
Why you should avoid relying on your partner’s pension
The biggest reason that some people plan to rely on their partner’s pension is the wage gap that exists in many couples. Women are particularly at risk due to caring responsibilities that can force women to work part-time or even leave their jobs altogether. However, almost a quarter of men also said that they would rely on a partner’s pension.
Relying on another person to provide for you after retirement could leave you financially vulnerable. While you may have a strong relationship now, circumstances could be completely different by the time you retire.
In the event of a separation, those who previously planned on relying on their partner’s pension could be left in financial heartache. For this reason, you should consider boosting your own pension plan.
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How to increase your pension
Here are five steps you can take to boost your pension and increase your financial security.
1. Make the most of pay rises
Although it can be tempting to use a pay rise as an excuse to splurge, the best way to use the extra money is to save it in your pension pot. It can be difficult to increase your pension contributions throughout the year, so make the most of pay rises when they occur.
Even a small increase in contribution can make a huge difference to your pension in the long run. A good tip is to try and increase the amount that you pay into your pot each year in relation to your wage increases.
2. Get more from your employer
Many workplaces only pay minimum contributions to employee pension pots. However, if you increase the contributions you make, your employer will often do the same. You should ask about possible contribution increases and make the most of these if they are available.
3. Don’t touch your pension pot
At the age of 55, it is possible to access your entire pension pot. Even before this age, many providers allow you to dip into your funds for other expenses. Doing this can hugely reduce the amount that is left for you when you retire.
To be able to support yourself financially during retirement, you should try to completely avoid dipping into your pension pot or withdrawing funds earlier than you need to. Consider using a provider that charges withdrawal rates if such a temptation is a concern.
4. Track down missing pensions
Most people will pay into several different pensions throughout their working life. As a result, it’s very easy to lose track of pensions that have been saved and miss out on the income that you are entitled to.
To minimise this risk you should make sure that your pension providers have up-to-date details when you move house or change employer. You could also use the Government’s Pension Tracing Service to help you track down lost pensions.
