Seven easy ways to save your pension fund and avoid wasting money | Personal finance | Finance
Here are seven retirement mistakes we’re all at risk of making at some point but need to avoid, says Jenny Holt, managing director of client savings and investments at Standard Life.
1. Rely solely on the state pension
You won’t get a penny of state pension until you’re 66, and the retirement age will keep rising.
Even when you get it, it won’t cover all your expenses. The new state pension pays a maximum of £9,627.80 a year, and only if you are entitled to the full amount. Many don’t.
A single pensioner needs £10,900 a year for a “minimum” standard of living, according to the Pensions and Lifetime Savings Association. That works out to £20,800 a year for a ‘moderate’ lifestyle.
2. Losing track of your pensions
More than £19billion in pensions are unclaimed, with an average value of £13,000 each. If you’ve changed jobs or homes and haven’t told your provider, one of these retirement pots could be yours.
If you cannot find old business or personal plans, contact the official pension search service. Call 0800 731 0193 or visit Gov.uk. Beware of private impersonators who will charge a fee.
3. Reject employers’ money
The workplace auto-enrollment pension scheme offered 10 million workers a company plan for the first time.
They must contribute 4% of salary, with an employer contribution of 3% and a tax relief of 1% bringing the total to 8%.
Employer contributions and tax breaks double your contribution, so resist the temptation to withdraw, even if money is tight. You are going to regret it.
4. Save the bare minimum
Auto-enrollment is a rare retirement achievement, but it alone will not guarantee a comfortable retirement.
Save more on your own, if you can. Consider putting extra into a self-invested personal pension (Sipp) or tax-advantaged Isa.
5. Underestimating the value of tax breaks
The government grants tax breaks on labor contributions and pensions. This is granted automatically to taxpayers at the base rate of 20%, so each £100 of pension costs them just £80.
High-income earners claim additional relief through their self-assessment statement.
This means that 40% of taxpayers only pay £60 for every £100 that goes into their kitty.
Again, if you don’t take advantage of this, you are refusing free money, this time from HMRC.
6. Not all pensions are the same
Typically, your pension is invested in stocks and shares, as well as lower-risk assets such as cash and bonds.
You need to check whether it matches your attitude to risk and how successful its performance has been. The closer you get to retirement, the less risk you need to take.
Also look carefully at fees, as high fees can erode the value of your pension over time.
7. Neglecting retirement
Dismissing your pension as boring can cost you dearly.
You need to make sure it’s on track to deliver the retirement you need. “It’s time to show your retirement plan some love,” says Holt.