Updated 25 July 2017
Tired of the same old diets and detoxes? Then it’s time to try something completely different. Whatever your age, let 2016 be the year you get to grips with your pension – because you’ll thank yourself in years to come.
There’s nothing like a New Year to remind you of the passage of time (who’s written the wrong date on a cheque already?). Every year brings all of us closer to retirement – but if the thought of getting older makes you gloomy, remember that each year also makes your pension grow a little bit more. When it comes to saving for later life, time is your best friend – so make the most of it. Whether retirement is near or far away, there are always plenty of things you can do.
Okay, it’s the obvious one. If you’re in work then you need to have a pension – it’s as simple as that. If you’re self-employed, talk to a financial adviser about finding the best personal pension for you. If you work for someone else, you’re entitled to a workplace pension – most of which include employer contributions, making them even better value. Don’t opt out just to save money now; you will regret it in later years.
Last year saw more than a million people join a pension scheme for the first time, mostly as a result of auto-enrolment in workplace pensions. However, many of those new joiners – and many existing scheme members too – pay into their pension only the minimum amount. This is a wasted opportunity, because everything you pay into your pension is boosted by 20 per cent tax relief (so every 80 pence turns into a pound) and the whole sum then benefits from compound interest over time – so the sooner you boost your contributions, the better.
If you joined a scheme several years ago, you’ve probably been receiving annual statements and just filing them. Well, it’s time to dig them out and take a look. The figure will have risen year by year, but is that rate of growth going to be enough? You probably can’t tell if it’s good or bad, but a financial adviser can. You can arrange a free pension check with a local adviser who can assess your current arrangements and recommend any possible improvements you could explore.
Most people have a number of different pension pots from various employers. It’s usually worth consolidating these into a single pension pot – for one thing it’s easier to manage when you reach pensionable age, and for another you may achieve a better rate of growth and lower administration fees. Talk to your financial adviser about whether this is best for you. Also make sure you track down any ‘forgotten’ pensions you may have. (If you have final salary pensions, however, it’s probably best to leave them where they are.)
You should be able to access your pension at any time from the age of 55. So if you’re approaching that age and have other savings elsewhere (e.g. in ISAs), you could consider moving these into your pension. You’ll receive a boost from tax relief at your marginal rate, and probably a better rate of growth too. Just make sure you won’t need to access the money before you reach 55. Also consider the tax implications if you then need to make a big withdrawal.
The good news is that today’s pensioners have more choice than ever before. That’s also the bad news. More choice unfortunately means more potential for making mistakes, if you don’t fully understand all the implications of what you’re doing. Pension freedom can seem very complex if you’re not familiar with all the terms – but it doesn’t have to be confusing.
For the simplest introduction to your choices under pension freedom, take a look at our quick pension guide. You won’t find a more straightforward introduction to the main options available to you, and the pros and cons of each.
To discuss your pension choices in more detail, talk to a financial adviser who specialises in pensions. You can find one local to you here.