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Tips to maximise and understand your Pension

Pension Awareness Day falls on 15th Sept 2022. Karen Barrett, Founder and CEO of Unbiased.co.uk has put together some tips to help people maximise and understand their pension.

Unbiased also has a dedicated pension calculator tool here https://www.unbiased.co.uk/tools/pension-calculator

Pension awareness day tips.

1)      Review existing provision: a cornerstone to prudent retirement planning is regularly assessing where you are in relation to your retirement goals. Doing this at least once a year will really make a difference. By frequently keeping on top of your pensions will enable you to plug any potential shortfalls should performance be lower than expected, helping to avoid any nasty shocks further down the line.

2)      Consider consolidating existing pensions: with most people working multiple jobs during their working life, it’s easy to accumulate several pensions plans. If you’ve also moved house numerous times, keeping track of your pensions can be difficult – you need to update each provider with your new address. A great way of solving this problem is transferring various pensions into a single plan, which not only relieve you of the administrative headache but can also lead to you paying lower charges.

3)      Save income tax and capital gains tax: one of the big attractions with pensions is the tax benefits on offer. For starters, you get income tax relief at your marginal rate on what you pay into a pension – so, for example, if the top rate of income tax you pay is 40%, a £1,000 contribution will only cost you £600. What’s more, your pension savings grow tax free – meaning your pot can increase at a faster pace – and once you start drawing your pension you can take 25% of the total tax-free.

4)      Save corporation tax: if you’re an owner/director of a private limited company, making pension payments from your company can help trim your corporation tax bill. This is because pension payments are classified as an allowable business expense. Given the top rate of corporation tax is currently 19%, and scheduled to rise to 25% from April next year, making pension payments has the dual benefit of helping your business achieve significant tax savings while also supercharging your personal retirement savings.

5)      Think about an annuity: if you’re already retired or fast approaching the end of your working life, it’s likely you’re currently weighing up your income options. One option available to you is an annuity, which where you use some or all of your retirement pot to buy a guaranteed, regular income for life. This can bring the peace of mind that you will have a fixed level of income no matter what happens. However, one thing you should you aware of this that once you’ve bought an annuity you can’t change it, so it’s important to be certain it’s what you want.

6)      Pause contributions if you have to: while the rising cost of living is impacting everyone, some are feeling it harder than others. If you’re worried about your ability to meet day-to-day costs either now or in the future, you have the option to pause your pension contributions. If you take this option, important thing is to make sure you restart contributions once your financial situation improves. You should be also aware that if you’re an employee, by stopping contributions your employer is not required to continue paying during this period either. Currently rules state that if you pay in 5% of your earnings, your employer must pay in at least 3%.

7)      Seek financial advice: the best way to boost your pension savings is by seeking expert advice. An expert financial adviser will use their skills and experience to put together personalised strategy to help you achieve the retirement you want. They invest your pension savings at a level of risk suitable for you, and ensure you’re making the most of your pension tax allowances. At Unbiased, we can match you with a pension specialist who can advise the best course of action for your personal circumstances.