This quick hack will boost your pension, says money expert
Pensions linger with us between every job we have. Their plans and budgets may change, but they act like a piggy bank that we keep with us until we can finally crack into it when we retire.
But how can we make sure that we’re getting the most out of them? And what can we do before we retire to make sure that they’re worth our time? With a few simple swaps, you may be saving more money than you thought possible.
What is a pension?
Your pension will typically fall under two strategies: a state pension or a private pension.
Your state pension is the minimum contribution that the state/government will financially support you with after you retire, acting as your retirement allowance or pocket money. In the UK, you must have been paying national insurance as a working adult to qualify for a state pension. This figure doesn’t always remain fixed and may change to align with inflation.
You can typically access your state pension once you turn 66 years old, which is the typical retirement age, or you can delay this until you choose to retire. Your state pension may include:
- Basic State Pension – Routine payments made from the government to support your income during your retirement.
- Pension Credit – Additional credits added to people on low-income wages, or for example, carers and the severely disabled.
- Additional State Pension – Added funds contributing to the sum of your pension, determined on any eligible benefits you receive.
You may budget to have a private pension, which you can access when you turn 55 years old. You can withdraw up to 25% of this sum as a tax-free amount, with six months available to withdraw the remaining taxable 75% of the sum. A private pension is typically agreed upon between you and your employer. This may include:
- Workplace Pension – The amount of money you save based on how much you and your employer pay into the scheme, which varies based on how much you contribute each month.
- Personal and Stakeholder Pensions – If you choose to buy shares in a company, this may fall into a stakeholder pension. In this scheme, your pension may vary in amount based on how well your investment does.
Understanding what pension pots you have paid into throughout your working life can help you regain control of your finances. Without recognising how you have budgeted throughout your career, you may have saved money that you haven’t accessed after your retirement. How much money you can access through your pension can vary based on:
- Matched employer contributions
- How long you have been working
- When you choose to access your pension
- Any benefits, discounts or support you may receive from the government based on your personal circumstances
- How much you have contributed through your wage each month
Pensions are something that Clare Marsh, director of tax and accounting at Her Business Counts Limited, is well-versed in.
To make sure that you’re getting the most out of your pension, Gathered spoke to Clare to hear the common financial mistakes you should avoid – and how you can get more money from your current pension plan.
What are the biggest mistakes people make with their pension?
1. Not doing your research
You shouldn’t blindly agree to any financial commitment without understanding what you’re committing to. Make sure that the pension scheme you’re contributing towards will be achievable and match your financial interests.
‘The biggest one I see, time and again, is not knowing their numbers,’ shares Clare. ‘Not in a complicated way, just the basics. What's coming in, what's going out, and what's actually left. People are often surprised when they sit down and look properly, either because things are better than they feared, or because the picture is clearer than the anxiety made it feel. Either way, knowing is always better than not knowing.’
2. Spending, rather than saving, first
Sometimes spending in a shopping splurge can be fun, but it shouldn’t be an everyday occurrence. Planning ahead to budget, rather than leaving it as a last-minute commitment, can help to grow your savings at the start of every month.
Clare adds: ‘The second mistake is treating savings as what's left at the end of the month, rather than something you pay first. If you wait to see what's left, it’s probably going to be nothing. Even a small amount moved into savings the day you're paid, before life gets in the way or you spot that perfect handbag, builds a habit and a buffer that makes everything else feel more manageable.’
3. Leaving it for someone else to organise
Clare says: ‘And the third [mistake], particularly for women, is deferring financial decisions to someone else, without really understanding what's being decided on their behalf. It's not about distrust, it's about confidence. Your finances are yours’, and you deserve to understand them.’
YouGov data reveals that around a third of women are entirely or somewhat dependent on their partner financially. 35% of women also admit that they would not manage very or at all if they split up with their partner because of the financial imbalance in the relationship. Boosting your financial literacy and understanding how your money is being managed, taxed and spent can be an essential part in protecting yourself and reducing your risk of financial hardship.
How can you get the most out of your pension?
Just because you’ve retired doesn’t mean that you can’t still change your current financial plan. In fact, keeping updated with what works best for you in the long term may change throughout your retirement.
‘Retirement isn't a finish line where the financial decisions stop,’ adds Clare, ‘if anything, the decisions become more important because the margin for error is smaller. So, staying engaged with your money matters, even when you'd rather not think about it.’
Some retirees explore new avenues for growing their pension, for example, buying pension years, checking for unclaimed discounts or investing in new ventures. It’s important to understand how you’re managing your money before you make any decisions you may later regret. Never gamble or risk losing large amounts of money that will leave you less financially stable than you originally were.
Get comfortable with being uncomfortable
We all put off looking at our incoming and outgoing payments, but that may be at a detriment to our savings. ‘Make sure you understand what you have,’ shares Clare. ‘Is it a defined benefit pension, sometimes called a final salary scheme, where you receive a guaranteed income? Or a defined contribution pension where the pot you've built is yours to draw from? The rules, the risks, and the options are very different depending on which you have, and a lot of people aren't entirely sure.’
Think before you spend
‘Think carefully about how you draw your income,’ Clare advises. ‘Taking too much too soon can leave you exposed later, particularly as people are living longer. The question of how and when to draw down, whether to take an annuity, and how to factor in the state pension alongside any private provision is genuinely complex, and this is where I'd encourage anyone to take proper independent financial advice. A good Independent Financial Advisor (IFA) will help you make your money last as long as you need it to.’
Asking for help or booking an appointment with a financial advisor can help to make sure that you’re not overspending from a finite budget.
Don’t slack on managing your savings
If you’re unsure if you should change your current pension scheme for one that better aligns with your goals, take the time to go through your existing budgets, incomings, outgoings and monetary commitments.
‘Review it all,’ encourages Clare. ‘Your circumstances change, the rules change, and what made sense at 65 may not be the right approach at 75. Your pension deserves the same attention as any other part of your life.’
Still contributing to your pension? This is what to do
If you’re yet to retire and are still working towards your pension plans, you should be active in taking control of your finances. It’s never too late to change, swap or even start considering what your future looks like. Here are Clare’s three top tips for people planning their pension at the moment:
1. Don’t get intimidated by deadlines
‘First, don't let the guilt about not starting sooner stop you from starting now. People can feel so behind that they almost can't bring themselves to look at it. But the best time to start is always today, not when you feel ready, because that feeling rarely comes on its own.’
2. Enrol, enrol, enrol
‘If you're employed, check whether your employer offers a workplace pension and whether you're enrolled in it. Many people are automatically enrolled but have no idea what they're contributing, what their employer is adding, or where the money is actually going. Log in, find out, and at the very least make sure you're contributing enough to get the full employer match, that's essentially free money that a lot of people leave on the table.’
3. Be active and take charge
‘If you're self-employed, there's no employer to nudge you, which means it's entirely down to you. That's where a lot of people running their own businesses fall short, not through lack of intent but lack of time and knowing where to start. For the specifics of what's right for your situation, I'd always recommend speaking to an IFA. What I can tell you is that something is always better than nothing, and the sooner you start, the harder your money works for you.’
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