How to make the most of your pension pot

Paying into a pension is one of the easiest and most tax-efficient ways you can begin to save for later life. But what are the best ways to boost your pension pot? With a generous annual allowance of £40,000 that you can contribute into your pension savings every year, explore how best to utilise your money and build a pension pot that helps you achieve your financial goals.

Increase your contributions

It may seem obvious but one of the best ways to boost your pension pot is to contribute more to it. Pensions are one of the most tax-efficient ways you can invest your money, so if you have any spare income, putting it into a pension could mean your money will work harder for you.

One way is by increasing your contribution when you get a pay rise. Rather than using a pay rise as an excuse to splash out, if you are able to, putting a portion of the extra money into your pension could be a more pragmatic way to utilise the spare change.

In most circumstances you can contribute up to £40,000 into a pension each year. If you have several pension funds this amount will be split across each pension you contribute to. Plus, if you have unused annual allowances from the previous three years, these can be carried forward to the current year.

Take a look at all your pension savings and ask yourself – should I be contributing more to my pension pot?

Start paying into your pension early

The early bird catches the worm, and this is no different with pensions. The earlier you start saving, the more money you could have at retirement. This works in two ways. The obvious one is you will have contributed more over time. The second is that pensions are investment products, and this means that if they perform well, the dividends are added to your pot. This money is then reinvested and the money compounds over time generating additional earnings. The earlier this process can start, the larger the potential gains. As with all investment products, the performance of investments can go up or down and you may get back less than your original investment.

Check your pension regularly

It is a good idea to check the performance of your investments regularly as small differences in performance can make a big difference to the value of your pension long term. With iSIPP you can easily check the performance of your fund online 24/7 and make changes to your choice of funds. This gives you the flexibility and control to make sure your savings are always working hard for you.

Understand tax rules on pensions

To encourage people to invest in pensions the government provides tax relief on their savings. Under the current rules, HMRC pays back 20% in tax relief to your pension pot when you contribute. This means that effectively you are getting tax back that you otherwise would have paid and added to your pension pot. If you are a higher earner, you can get even more back through your self-assessment.

There are two ways that pension tax relief works, Relief at Source and Net Pay. You can read more about this at the MoneyHelper website here.

Think about combining your pensions

If you have worked in several jobs, you may have different pension pots scattered around. Also if you have moved house and not told the pension provider, you may have even forgotten about some of these. That means you could have thousands of pounds of savings waiting for you. Having several pension pots can be difficult to manage and keep track of and it is easier to forget about one when changes happen throughout life. That’s why at iSIPP we make pension consolidation easy. By combining your pensions you can take advantage of:

• The ability to track and manage your pension in one place
• Better control and full oversight for more informed decisions
• Only one company to deal with, saving you time and effort
• A fixed annual administration fee, with competitive and clear platform and fund management charges

Conclusion

Your pension is one of the most tax-efficient investment options available to you and so understanding how to best utilise your savings is essential when planning your finances for later life. iSIPP offers you the opportunity to combine your pensions and transfer your money into one easy-to-manage SIPP with online access 24/7. To learn more about what we do and how we can help you, take a look here.

Disclaimer 

The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.