Worried you’re missing something important that may impact your financial future? Here are four easy pension actions you need to take now.
When it comes to making decisions about your future, and specifically about pensions, it can sometimes feel overwhelming. How much money do you need to save? Are you investing enough? And have you made the right choice for pension provider?
No wonder so many people fall in the pension analysis paralysis trap!
The truth is that you don’t need to be a financial expert to put yourself on the right path for your future. You just need to make sure you have taken a few simple actions.
And to help you, we’re going to go through the four most important steps we believe everyone should take here:
- Look for any lost pensions
- Make sure your pensions are in the best place
- Check your State Pension forecast
- Maximise your pension payments
Let’s look at each in turn, and how you can ensure you have it covered.
1) Look for any lost pensions
Could you have a pension pot you have forgotten about? According to the Association of British Insurers, over £30 billion is lying in unclaimed, lost or forgotten pension pots across the UK. That equates to around £9,500 per person who’s lost a pension.
So your first step in ensuring you are doing all you can for a financial healthy retirement should be to check for any missing pensions. We explain how to do this in detail here.
2) Make sure your pensions are in the best place
When you have a record of all your pensions, do a quick bit of research on your pension providers. You can find advice on how to check your pensions on MoneyHelper, a free, government-backed service with easy-to-understand, impartial guidance on money and pensions.
If you’ve acquired a number of different pensions over the years – perhaps from different employers – you may choose to combine them into one single pot to make them easier to manage.
3) Check your State Pension forecast
If you qualify, you can receive the State Pension from the age of 66 (rising to 67 in 2028). To qualify for the basic pension you need 10 years on your National Insurance record, and for the full State Pension you need 35 years.
To find out whether or not you qualify, you can check your State Pension forecast here. If you have any gaps in the last six years, the good news is that you can backdate payments.
4) Maximise your pension payments
The more you pay into your pension now, the more time it has to grow, and the more you can potentially have to live on when you retire. So take a look at your finances, and see what you can realistically afford to pay into your pension each month.
There are also attractive tax benefits from investing in your pension you can take advantage of. Let’s look at the different scenarios you may find yourself in, and what you are entitled to.
You are employed
If you are employed and qualify for auto-enrolment, your employer should be deducting pension contributions at source and paying into a pension on your behalf. Even if you don’t qualify for auto-enrolment, for example if you earn less than £10,000 a year, you can still ask to join.
You can also increase your pension contributions using salary sacrifice, which can help to reduce the amount of tax you pay. Your employer may offer to match some or all of your salary sacrifice contributions.
You are not employed
If you are not employed and don’t work for yourself, you can pay up to £2,880 into a pension every year and the government will add £720, meaning a total of £3,600 is contributed.
You are self-employed
If you are self-employed and a basic rate taxpayer, you should get a 25% tax top up on any pension contributions you make. So, for every £100 you pay into your pension, you’ll get another £25 from the government, making it £125. If you are a higher or additional rate taxpayer you can claim further tax relief through your Self Assessment tax return.
You have a limited company
If you work for yourself via a limited company, any contributions you make to your pension through your business can be treated as an allowable business expense, and are offset against your corporation tax bill.
Pension tax relief is capped at £60,000
Whether you are employed, self-employed or paying into your pension via a limited company, the maximum you can contribute each year to benefit from this tax relief is £60,000, or 100% of your income or profit, whichever is lowest. You can also use any unclaimed allowances from the past three years.
Put yourself on the right pension path
Every day that passes is a day you are potentially missing out from the benefits of compound growth. So we strongly encourage you to start taking action now, if you need to. Just think how good it will feel when you know exactly what your current pension position is, and that you are doing your best to save for a better future for yourself.
