When you’ve got bills and other financial commitments on your plate, finding enough money for your pension isn’t always easy. But it can still be done – and the sooner you act, the more you could benefit.
If you have a defined contribution pension, here are six simple things you can try:
1. Use pay rises as an excuse to save
If you’re struggling to pay as much as you’d like into your pension, here’s a simple tip to help you save more. Start off by paying in whatever you can afford, then whenever you get a pay rise, redirect a portion of it into your pension. That way, you won’t get used to spending the money that’s headed to your pension – and you'll still benefit from some of your hard-earned raise going into your bank account.
2. Pay in more when a regular spend ends
You can try a similar move to the one above whenever a regular expenditure comes to an end. If you pay off a car loan, for instance, you could pay the extra money into your pension plan. Even small increases like this can make a big difference – especially over the long term. And if you need to reduce your outgoings in future, it’s usually possible to reduce your contributions if you want to.
3. Maximise any employer contributions
Some employers increase the amount they pay in when you increase your contributions too (up to a certain limit). So if you put in an extra percent or two of your salary, they might pay in more as well. Ask your boss for details of whether they contribute to your pension plan, and by how much.
4. Lump in a lump sum
If you come into some cash, paying a lump sum into your pension is a quick and easy way to give it a boost. And as with other payments into your plan, the government will top it up with tax relief (up to a certain limits). So if you received a bonus from work and paid £1,000 of it into your pension plan, for example, the government would add at least £250 in tax relief if you’re a basic rate payer – and you could potentially claim back more if you're a higher or additional rate tax payer. Your tax treatment depends on your individual circumstances and may be subject to change.
5. Put off breaking into your pension pot
The longer you leave your pension untouched, the longer it has to potentially grow. And if you’ve already had your pension for a long time, leaving it invested for a few extra years can make a big difference. That said, it’s important to remember that there’s no guarantee your investments will grow. Investments can fall as well as rise in value, and you may not get back what you paid in.
Working for longer won’t be for everyone, of course. But if you’re happy to do it, it’s a handy option to have.
6. Be choosy about your investment choices
Where your pension is invested can have a huge impact on what you’ll get back when you retire. For example, if your scheme has a 'default' investment option -- where your money is automatically invested when you join the scheme -- it may not be the most suitable for you. So it’s worth looking at which investment fund/s your money is invested in.
If you do decide to switch to another fund or funds, always remember that there’s no guarantee the new fund(s) will perform better than the old one(s).
Exactly how you make changes to your pension will vary depending on which type you have. However, with many modern schemes you can make alterations online with just a few mouse clicks. Check your policy information or speak to your employer to find out if that’s the case with yours.
And remember, the more money you pay in now, the longer it has to potentially grow. The compounding effect – where any returns your pension generates could, in turn, earn additional returns – can make a difference over the long term.
These tips are for people with a defined contribution pension – schemes where you build up a pension pot based on contributions from you and/or your employer, plus any investment returns. Like most investments, the value of your pension can go down as well as up, and you may not get back as much as you paid in.
This article is not intended to give advice or a personal recommendation. If you’d like a personalised recommendation based on your circumstances, you should seek financial advice. You can find a financial adviser in your area at www.unbiased.co.uk