5 simple ways to boost your retirement plan in 2025
A few tips on how to address some pension basics, from tax relief and pension allowances to annuities and tracking down lost pensions.
As we start the new year, many people will be thinking about how they could improve their finances. And looking at your pension should be an important part of that process.
Whilst retirement may seem a long way off for some, you shouldn’t be complacent. Many people adopt a set and forget approach, not really giving their pension a second thought. The upshot is that this could seriously impact the size of pension pot you end up with. Taking a few simple steps now can make a big difference.
Here are five simple steps to take that should help boost your retirement income.
1. Don’t set and forget contributions.
As mentioned above, many people set their pension contributions at the auto-enrolment minimum level and forget to update them.
This could possibly provide you with enough for retirement but in most cases it won’t. Which is why you should always keep track of how your pension pot is developing.
One simple step, like increasing your pension contributions whenever you get a pay rise, is a relatively simple and painless way to boost your pension.
It might also be worth checking with your employers to see if they will increase their contribution if you increase yours. Most employers will match your pension contributions up to a certain level, and it can make a huge difference to how much goes into your pension.
2. Make the most of your allowances.
A pension is a great way to save for retirement, as you get tax relief on the money you put into your pension pot (up to a maximum of £60,000 this tax year). Because of this, you should look to pay in as much as you can afford on a regular basis and look to use the allowance before the end of the tax year on 5 April 2025.
On top of that, carry forward rules allow you to make use of any annual allowance that you might not have used during the past three tax years. So now is a good time to think about topping up your pension, particularly as this money can benefit from compounding and could add a significant amount to your total pension pot in the long-term.
And if you’ve used up your own allowances, you can still contribute up to £2,880 per year to the SIPP of a non-working spouse or child. The government will top this up in the form of tax relief to bringing the contribution to £3,600.
3. Remember to claim your pension tax relief.
Tax relief on pension contributions has a major impact on your retirement savings. If you are a basic rate taxpayer, if you pay in £80 to your pension, the government adds a further £20, making your contribution £100. This boost to your pension pot can be put to work in the stock market, potentially for decades.
Higher and additional-rate taxpayers do even better, with their £100 pension contribution only costing them £60 and £55 respectively.
However, whilst basic-rate taxpayers get their pension tax relief automatically, higher earners may not do so and may need to claim the extra 20% or 25% tax relief through self-assessment.
This is because the way you get tax relief depends on the type of pension you are saving into, and the rate of income tax you pay. There are two systems: relief at source and net pay.
If your pension scheme uses the ‘net pay’ arrangement, pension contributions are deducted from your salary before income tax is paid on them. Your pension scheme automatically claims back tax relief at your highest rate of income tax, so you don’t need to do anything to get the full tax relief you’re entitled to.
However, with the ‘relief at source’ system, your pension contributions are made from your after-tax pay. If you’re paying into a pension through your employer, your employer will take 80% of your pension contribution from your salary and claims 20% tax relief from HMRC.
If you’re a higher rate taxpayer, and therefore entitled to more than 20%, you will need to claim the extra tax relief yourself, either via your self-assessment tax return or by contacting HMRC directly.
The relief at source system applies to some workplace pensions and all personal pensions – ie those you set up yourself, including SIPPs.
4. Find your lost pensions.
Another way to boost your pension savings is to find your lost pension pots. Research carried out by the Pensions Policy Institute shows that there are around 3.3 million ‘lost’ pension pots worth around £9,500 per pot.
With people changing jobs at least 11 times during their careers, it’s easy to lose track of pensions from old employers, and not tracking down these pension pots down can leave you thousands of pounds worse off.
One way to look for missing pension pots is to use the government’s Pension Tracing Service. And once you’ve found all your missing pensions, it might make sense to consolidate them into one pension scheme, as this could save you time, money and admin.
However, before you do consolidate, it’s worth checking that you won’t incur any expensive exit fees or miss out on valuable benefits like guaranteed annuity rates.
5. Search for the best annuity rates
If you are approaching retirement, it’s important to ensure that you optimise your retirement income. Annuities have been offering great value for a couple of years now, so are certainly worth consideration. However, you need to ensure that you search the market to get the best deal for you.
Quotes can vary significantly between providers, so making the wrong choice could leave you thousands of pounds worse off over the course of your retirement.
Remember too, that once you buy an annuity, it can’t be undone, so it’s important that you take the time scan the market.
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The above options are just some of the basic steps that you can take to boost your retirement savings.
If you’d like to discuss in more detail how to give your pension savings a boost at the start of 2025, please get in touch today.
Please note
This article isn’t personal advice. If you’re not sure whether an investment is right for you, please seek advice.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
You should seek advice from your Kellands financial adviser to understand your options at retirement.