Many people may dream of living out their golden years sipping champagne on a Caribbean cruise, but the reality for many is that just having enough money for a relatively comfortable lifestyle could be a challenge.
Here at Moneyfacts we acknowledge that if you work hard all your life, you deserve a happy retirement, so we've put together six tips to help you get the most out of your pension.
1. Start planning straight away
This is one of the most important tips you could read. Many people spend plenty of time reading articles and pondering over the best way to save for retirement, but you'll want to actually take the steps to start saving as soon as possible – a delay of just five years could mean an annual difference of thousands when it comes to your pension payments. Yes, a good retirement plan is important, and you may want to talk to an independent financial adviser to ensure you are on the right track, but above all, make the decisions and start putting money away.
2. Take advantage of employer contributions
Employer pension schemes are always going to come out tops when it comes to saving for retirement due to the fact that your employer will put money into your scheme too. Plus, with auto-enrolment being phased in, more people than ever will be saving for their retirement, and by 2018 there will be a minimum contribution of 8% going into all pensions pots, made up of 4% from you and another 4% from a combination of your employer and tax relief. Consumers would be crazy not to take advantage of this top-up from the employer as it is the best way to boost your pension pot without it coming out of your own pocket.
3. Remember to nurture your state pension too
With all the negative press about state pensions not being enough, it's easy to overlook them. The state pension may not be a huge amount but it is an important guaranteed income that you are owed due to paying National Insurance contributions all your working life, and you need to ensure it's up to scratch. Start by requesting a state pension forecast to see how many qualifying years you have accumulated. If you don't have the required amount of years then you may only get a proportion of the full state pension, however there are some things you can do about this, including buying back missing years and making Class Three voluntary contributions. Speak to HMRC to get the best advice on making the most of your state pension.
4. Don't put all your eggs in one basket
Although pensions are always going to offer the best tax relief, there are other ways you can save for retirement to increase flexibility and profitability. ISAs offer a much more flexible approach to saving, enabling you to access your money when you want to. Most pensions won't let you get hold of any of your money until you are 55, and even then it is usually just a 25% lump sum. With an ISA you're in control - which also means you need to have restraint in not using the money for anything but a dire emergency – but if you do need to get hold of the funds for whatever valid reason, you can so this with ease, and if you lock your money away for a few years you can get a better interest rate too. Another retirement option people are increasingly selecting is the property market. This takes a lot more commitment and planning from your part, but if you do your research carefully, this can be a great way to get attractive returns.
5. Delay your retirement
If you can manage to delay the date you retire, it could make a big difference to your eventual pension pot, giving you more time to pay in and allowing it time to grow. If you don't need to draw your pension straight away then refrain from doing so, and bear in mind that annuity rates also fluctuate drastically depending on the age you retire, with many offering a much higher rate the older you are. Even the state pension works the same way, and a delay of just one year entitles you to over 10% more.
6. Shop around for an annuity
This is one of the easiest things you can do, but surprisingly the one many people don't undertake. It has been shown that shopping around can boost your pension by up to 40%, according to Hargreaves Lansdown. Don't take the first pension offered to you from your pension provider, instead, get a good grasp of the market and make an informed decision. Take a look at our annuity service to compare what you could get. Another consideration often overlooked is enhanced annuities; it may sound morbid, but if due to your lifestyle or medical history your life expectancy may be shortened, you could get a much higher retirement income for the rest of your life.
There is a lot to consider when it come to pensions and at times it may seem a bit overwhelming, but if you start making changes earlier on, it can have a big impact on the comfort of your retirement. Take a look at our retirement guides for more in depth information to help you make the most of the options available to you.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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