13th February 2018 at 4:29pm
As we move into 2018, it’s a great time to think about some forward planning. And when it comes to your pension there really are plenty of reasons why you should take action today.
We’ve put together some tips that you can use to help you make the most of your pension investments and give you more to look forward to in retirement. Whatever your plans are for the future, if you follow these simple steps and invest some of your time now, the benefits could last you a lifetime.
One – increase your pension payments over time
If your monthly budget allows, why not think about increasing the payments you make to your pension? This could be in line with inflation or when you have a salary increase. Even putting in as little as £10 extra a month could go a long way, especially if you start when you’re young.
Everything you save into your pension benefits from compounding – that’s the effect of growth on growth. Over a few months or a year, the effect may be small but over a longer period you could build up the value of your investments significantly. Find out more about the power of compound growth in our blog.
And, if your circumstances allow, why not make one-off payments when you can? If you receive a windfall, such as a work bonus or an inheritance, you could put some or all of it in your pension.
Remember though, that there are no guarantees, investments can fall as well as rise in value and you could get back less than you paid in. And, of course, past performance is not a reliable indicator of future performance.
Two – get extra top-ups from the taxman
The more you pay into your pension, the more tax relief you’ll normally get from HM Revenue & Customs (HMRC) – a basic rate taxpayer gets 20% relief and a higher rate tax payer gets 40%. Typically your pension provider will add basic rate relief at 20% to the amount you pay into your pension. For example, for every £80 you pay into you pension, HMRC pays in £20. And if you’re a higher rate taxpayer you could claim an extra 20% relief through your self-assessment.
Some workplace pensions take your payments from your salary before tax. The good news here is that everything goes directly into your pension with no need to claim any higher rate relief.
Just think of all the top-ups you could receive over the years. And remember that all these top-ups have the potential to benefit from the compound growth we described above.
Three – know where your pension is invested and review regularly
How you invest your pension will depend on how much time and experience you have, as well as how much financial responsibility and risk you feel comfortable taking on. You can either choose and manage your own investments, or let investment professionals do this for you.
If you’re in a workplace pension then there’s usually a ‘default’ option where your pension payments will be invested if you don’t want to make a choice. The good news is that default options are usually designed to get your money to where it needs to be by the time you come to access it. And they’re reviewed regularly to make sure they remain appropriate for members like you. Our do-it-yourself or delegate guide can help you decide which route is best for you.
Even if you decide to delegate investment decisions to professionals, try to make time to check your investments at least once a year and make sure they’re on track to meet your plans. This is especially important as you get closer to taking money out of your pension.
Four – think long term and diversify
As your pension is invested, it can go up and down regularly in value. But you’ll usually be saving into your pension for many years. And, generally, over longer periods investments have provided better returns than, for example, putting money in a savings account. So try not to worry when you see these ups and downs, and focus on the long term.
You can reduce the risk of large ups and downs in value by having a mix of different types of investments. Most workplace default investment options will already do this for you. Many personal pensions also have options that package together different types of investments if you don’t have the time or experience to build your own portfolio.
You can read more about why diversification is important when you’re investing.
Five – think about transferring all your pensions to one place
Life tends to be easier when it’s organised. So, if like many people you’ve collected several pension plans over the years from different jobs, it could make sense to bring them all together.
It can be a good way to get a better picture of your overall pension value, and make sure your pension investments are on track. Please be aware though there’s no guarantee of a better pension by transferring into one plan and you could be giving up valuable benefits or guarantees held with other plans.
It’s also always worth taking the time to compare the charges and investment choices of your different pension plans.
Paying a little more attention to your pension today could make a big difference to your future. So why not start now?
A pension is an investment. Its value can go up or down and it may be worth less than you paid in. Investment returns aren’t guaranteed. The value of your investment can go up or down and may be worth less than what was paid in. The information in this blog or any responses to comments should not be regarded as financial advice.