- Pensions, Pensions Awareness Week
Do you already have a good grasp of pensions knowledge, or wish you knew more about how your pension helps towards more than just retirement goals? We asked our experts to provide their top tips and pension insights you might already know…
Lesley: If your income is approaching the next tax bracket, you could consider making a pension contribution via salary sacrifice – this basically means you would not pay higher rate tax on the additional income. For example, higher rate tax threshold is £50,270. – if your salary increases to £54,000, you would be due tax at 40% on the £3,730 above, however if you offset that salary increase and pay the extra to your pension you wouldn’t need to pay the higher tax. In addition, the contribution would be entitled to tax relief at your basic rate margin.
Jayne: Don’t forget the state pension. Whilst it might not feel like a lot of money, and retirement can sometimes feel a long way off, subject to eligibility the pension is guaranteed and increases with inflation. It soon adds up and when you add it to other income, it soon looks a lot more attractive. You can run a state pension forecast to get a better idea of where you are at. Although a simple concept, it can become more complex when considered within your overall financial situation, so always speak with an advisor for a 360 view.
Umarrah: People like to be organised and if they have had several jobs they will have several pensions, so combining these could provide a better picture overall, make it easier to check, and potentially offer savings through lower charges. (Consolidating pensions may not be right for everyone and we would always suggest seeking financial advice first.)
Jen: You may already know that paying into your pension is very tax efficient, but many people don’t realise that their pension is effectively an investment, and forget to consider the underlying investment strategy (often leaving the fund in a default fund, which may or may not be suitable). Remember to check where your pension is invested, and whether this suits your needs, goals and timeline.
Allie: Start contributing into your pension as early as possible and use pay rises as an excuse to increase your pension saving. It is important that any pension saving is affordable to you, so only save into a pension what you can afford to lock away long term; however, savings into pensions early means that you give yourself time to build a pot to support you in later life, and you get tax relief on the savings you make that are within your allowances (meaning less money to the tax man!).
Kat: If you haven’t maximised your pension contributions previously, you may be able to carry forward the unused allowances from the previous three tax years to make a contribution in excess of the standard annual allowance (£60,000 in the 2023/24 tax year), though note that where contributions are made on a personal basis, you will also be limited to your ‘relevant earnings’ in the year. Relevant earnings includes all employment income and income from self employment/partnerships, as well as some employment benefits. Rental income and pension income do not count towards your relevant earnings. If you are unsure of your relevant earnings then an advisor will be able to help determine this for you.
Lindsey: Make sure that your pension nominations are up to date. With people changing jobs so often, it’s easy to lose track and life changes mean that your current nominations may not be up to date and reflect your wishes
Also, there are a number of ‘net salary’ calculators online that can show you the impact of changing your % contribution to your employer pension scheme. A percentage or two of an increase typically won’t make a significant difference on your net salary but over time can make a huge difference to the pension pot you are accumulating.