5 simple tips that can help you maximise your income in retirement

5 simple tips that can help you maximise your income in retirement

Retirement is a great opportunity to do all the things you’ve wanted to do but just not had the time. That said, before you retire, it’s advisable that you put together an effective financial plan to make sure you have the savings available to allow you to do everything you want.

With inflation still high as of May 2023, it’s now more important than ever that you look at how best to financially prepare yourself for your retirement. Read on to find out our five simple tips for maximising your retirement income.

1. Make the most of your State Pension

The State Pension, while not necessarily enough to fund your entire lifestyle, provides a bedrock of guaranteed, index-linked income for life. So, it’s important that you maximise your entitlement.

To qualify for the full State Pension of £203.85 per week (2023/24), most UK adults will need to have paid National Insurance contributions (NICs) or received NIC credits for 35 years.

A way of plugging this gap is to purchase additional credits dating back to 2006. It’s important to do this sooner rather than later though, as this arrangement comes to an end on 31 July 2023. After then, you will only be able to fill gaps going back six tax years.

To find out your entitlement, you can obtain a State Pension forecast on the government website. This will tell you if you’re on track to receive the full State Pension. If not, now’s the time to think about plugging any gaps.

2. Increase your pension savings where possible

If it’s financially viable for you to do so, you could consider making additional contributions to your pension. This will enable you to build up a bigger pot, which you can then use to provide additional income in your retirement.

If contributing to a workplace pension, your employer may also match your increased contributions, potentially doubling the benefit.

Additionally, you could choose to make an extra one-off payment to your pension if you receive money from a work bonus, for example.

Make sure you claim all the tax relief you are entitled to

While most UK adults receive basic-rate tax relief of 20% as standard on their pension contributions, if you are a higher- or additional-rate taxpayer, you can also claim additional relief. Higher-rate taxpayers benefit from 40% relief, while additional-rate taxpayers can claim relief at 45%.

If you’re a higher- or additional-rate taxpayer, you can claim the additional tax relief through your self-assessment tax return.

It’s important to do so, because MoneyWeek reports that higher-rate taxpayers failed to claim an average of £245 million in pension tax relief each year between 2016/17 and 2020/21. Similarly, additional-rate taxpayers failed to claim about £18 million in each of these tax years.

Making sure you claim all the tax relief you’re entitled to can give your pension pot a boost, and could provide you with a more comfortable lifestyle when you retire.

3. Trace any lost pensions

If you’ve changed employers or have been in more than one pension scheme during your career, it can be a challenge to keep track of your pensions. Over time, pensions schemes can be renamed, merge or even close and so you may well have lost track of some contributions over the years.

Indeed, Standard Life report that, as of October 2022, more than 2.8 million pension pots were considered “lost”, an increase of 75% over the previous four years.

Most pension schemes will send you a statement each year, and include an estimate of the retirement income that your pension might give you when you retire.

If you no longer receive the statements, or you think you may have paid into a scheme that you no longer have any details of, contact either the pension provider, your former employer (if it was a workplace pension), or the Pension Tracing Service.

You’ll likely need your National Insurance Number, the dates you started and ended your employment, and the dates you joined and left the pension scheme.

With Unbiased reporting that the average size of a lost pension pot is £13,000, tracking down an old scheme could give your retirement savings a real boost.

4. Review your existing pensions

Aside from your State Pension, you might have built up a collection of different pension pots during your career. When planning for your retirement, it’s important to consider all your options and that includes the possibility of consolidating all your pensions into one.

You might want to combine your pensions to more easily keep track of all your pension savings, to potentially achieve better growth, to save money, or just for pure convenience.

However, it’s worth noting that sometimes consolidating your pensions might not be beneficial for you. For instance, it might not be feasible if one of more of your pensions is a final salary or has guaranteed annuity rates. Similarly, there might be penalties for transferring.

We can help you establish whether pension consolidation is right for you.

5. Work with a financial adviser

The most important aspect of planning for your retirement is having a well-structured plan in place.

Knowing what you’d like to do in retirement can help you to establish the level of income you’ll need to maintain that standard of living. And, once you know how much you’ll need, you can start saving towards your goals.

If you’d like to discuss how to maximise your income in retirement, please get in touch. Talk to us by calling 0800 434 6337.

Please note:

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.