Feeling behind on your pension savings can be a source of anxiety, but it’s never too late to take steps to improve your financial outlook.
Whether you’re in your 20-30s, 40-50s, or even 60s, there are strategic actions you can take to boost your retirement savings and ensure a comfortable future.

Assess Your Current Situation

First things first, you should thoroughly evaluate your current financial situation, knowing exactly where you stand.  Calculate your current pension savings and use online pension calculators to project your future retirement income based on your current contributions. This assessment will give you a clearer picture of what you need to do in order to achieve your retirement goals.

Understanding your current situation involves more than just tallying up your savings. It’s essential to consider all aspects of your financial life, including your debts, assets, and expected expenses in retirement. Look at your current income and outgoings to identify areas where you might cut back to free up more money for your pension.

Understand Your State Pension

The state pension is a foundational part of your retirement income, so you need to understand what you’re entitled to. If you have at least 10 years of National Insurance contributions (NICs) when you retire, you will qualify for a state pension. To receive the full state pension, you need 35 years of NICs. You can check your state pension forecast online to see how much you are likely to receive and whether there are gaps in your contribution record that can be filled by voluntary contributions.

Increase Your Pension Contributions

Boosting your pension contributions is one of the most effective ways to catch up. If you have a workplace pension, find out if your employer offers matching contributions. This means that for every pound you contribute, your employer will add a certain amount, effectively giving you free money. For example, if you increase your contribution from 5% to 6% of your salary, and your employer matches this by increasing their contribution from 3% to 4%, your pension pot could grow significantly over time.

Consider setting up automatic increases to your pension contributions each year or if you get a pay rise. This way, your contributions grow without you having to think about it, and you benefit from the tax relief on these contributions.

Start a Personal Pension

If you don’t have a workplace pension or want to save more, consider starting a personal pension, such as a Self-Invested Personal Pension (SIPP). A SIPP offers a wide range of investment options and allows you to have more control over your pension investments. This can be a good option if you’re comfortable managing your investments or seeking higher growth potential. However, remember that higher returns come with higher risks, so it’s essential to make informed decisions or seek advice from a financial adviser.

Make Use of Pension Carry Forward

If you’ve not used up your annual pension allowance in previous years, you can take advantage of the carry forward rule. This rule allows you to use any unused allowances from the previous three tax years, enabling you to make larger contributions in the current year and benefit from tax relief. This can be particularly beneficial if you’ve come into a lump sum of money, such as an inheritance or a work bonus, and want to invest it for your retirement.

The carry forward rule is particularly useful for high earners or those with fluctuating incomes. By making larger contributions now, you can maximise the tax relief available and significantly boost your pension pot. Ensure you understand the limits and rules around carry forward to avoid any tax penalties. Consulting with a financial adviser can help you navigate this strategy effectively.

Delaying Your Retirement

Another effective strategy is to delay your retirement. Working for a few extra years can provide more time to save and allow your pension investments to grow. Even part-time work can contribute to your pension savings and reduce the need to draw from your pension early. Additionally, deferring your state pension can increase the amount you receive when you eventually start claiming it, providing a higher income in retirement.

Delaying retirement doesn’t necessarily mean working full-time until you’re 70. Many people choose to phase their retirement, gradually reducing their working hours while still earning an income. This approach not only boosts your pension savings, but also eases the transition into full retirement.

Track Down Lost Pensions

In today’s job market, it’s easy to lose track of pensions from previous employers. Use the government’s Pension Tracing Service to find and consolidate any old workplace pensions. Combining these pensions can simplify your retirement planning and potentially increase your overall pension pot. Many people are surprised at the value of pensions they had forgotten about.

Review and Adjust Your Investments

Regularly reviewing your pension investments is essential to ensure they align with your retirement goals and risk tolerance. Most workplace pensions have a default fund, but you may have the option to choose different funds that better match your risk profile and investment horizon. If you are far away from your retirement years and are happy to take more risk, consider allocating a portion of your investments to higher-risk, higher-reward assets. Always remember that investments can go down, as well as up, so you could get back less than you invest.

Investment reviews are not a one-time task; they should be part of your ongoing financial management. As you approach retirement, you may want to gradually shift your investments to lower-risk options to protect your savings from market volatility. Understanding your investment options and regularly assessing their performance can help ensure your pension pot grows as needed. This is where working with a financial adviser comes into play, as they provide ongoing insights and advice tailored to your unique situation.

Maximise Tax Relief

Pension contributions benefit from tax relief, which can significantly boost your savings. For example, if you are a basic rate taxpayer, a £100 contribution effectively costs you £80 after tax relief. Higher rate taxpayers benefit even more, with a £100 contribution costing just £60. For those paying the additional rate of tax, the savings are even greater, with a £100 contribution costing only £55. To make the most of this tax benefit, consider contributing as much as you can afford, up to the annual allowance limit of £60,000.

Tax relief is one of the most powerful incentives for pension saving. It effectively reduces the cost of saving for retirement, making it easier to build a substantial pension pot.

Seek Professional Advice

If you’re unsure about the best steps to take, consider seeking advice from a financial adviser. A professional can help you create a personalised plan based on your financial situation, retirement goals, and risk tolerance. They can also provide guidance on tax-efficient strategies and investment options, ensuring that you make informed decisions that align with your long-term objectives.

Financial advisers can offer valuable insights and strategies that you might not have considered. They can help you navigate complex pension rules, optimise your investment portfolio, and create a comprehensive retirement plan. Regular reviews with your adviser can keep your plan on track and adjust it as needed to reflect changes in your circumstances or goals. Investing in professional advice can pay off significantly in terms of securing your financial future.

Stay Informed and Proactive

Staying informed about changes in pension rules and tax regulations is crucial for effective retirement planning. Being proactive and engaged with your retirement planning can help you stay on track and make informed decisions. The pension landscape can change, and keeping up to date will help you take advantage of any new opportunities and avoid potential pitfalls.

While it can be daunting to feel behind on your pension savings, choosing to take decisive steps is the way forward. By increasing your contributions, utilising tax relief, reviewing your investments, and considering additional income sources, you can boost your retirement savings and work towards a secure and comfortable retirement. Remember, it’s never too late to start saving for your future, and even small steps can have a big impact over time. Taking action now can help you achieve the retirement you dream of and provide peace of mind knowing you are on the right path.

THE VALUE OF INVESTMENTS AND ANY INCOME FROM THEM CAN FALL AS WELL AS RISE, AND YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A GUIDE TO FUTURE PERFORMANCE AND SHOULD NOT BE RELIED UPON.

[1] Pension Bee: Over half of Brits are in the dark or ‘dangerously underestimating’ the minimum cost of retirement: May 2024: https://www.pensionbee.com/press/underestimating-retirement-cost