How to Boost Your Pension Pot When Money Is Tight

The cost of living crisis is forcing many of us to cut back on important things. In most cases, non-essential expenses such as holidays, takeaways, and nights out are being sacrificed. But for some of those really feeling the pinch, retirement goals are also taking a hit.

Recent research by Canada Life, the life and pensions provider, found that one in 20 employees have placed their company pension contributions on ice due to rising costs – and others look set to follow suit. A further 6% were considering halting contributions, while an additional 9% might consider doing so in the future. This course of action is rarely advisable – you’ll forgo both tax relief, and contributions from your employer. Canada Life estimates that stopping contributions for two years could result in your retirement pot being 4% smaller – broadly equivalent to a year’s income.

However, we appreciate that non-discretionary expenses such as mortgage payments, rent, food, petrol, and utilities have risen sharply since the start of the year, and wages are struggling to keep pace. Pausing your pension payments might be necessary to avoid plunging into debt. To limit the potential damage here, it’s important to restart contributions once your expenditure returns to a more manageable level. In the meantime, if you have existing pension savings there are still steps you can take to nudge closer to your retirement goals.

Consider consolidating existing plans

You’ll likely accumulate several pensions during your working life for a very simple reason: whenever you change employer, you get enrolled onto a new scheme. Whether you’re at the start of your savings journey or edging towards retirement, merging multiple pensions into a single plan can bring significant benefits.

While there’s nothing wrong with having several pots – some may argue this can offer some welcome diversification – having too many can sometimes be an administrative headache. Every time you move home you must inform each pension provider of your new address. This is a key reason why they can go missing. The Association of British Insurers estimates there’s collectively around £19.4 billion sitting in lost or forgotten pensions.

Along with providing some welcome admin relief, switching pensions can also reduce the amount you pay in annual charges. For example, some pension providers operate a tiered charging structure, which reward bigger pots with lower fees. This can help your money to grow quicker, offering a boost to your retirement pot.

It is important to sound a note of caution here. In some cases, you could lose valuable benefits by transferring out of your existing scheme. For this reason, we urge you to take financial advice before making any decisions.

Revisit your investment strategy

As saving for retirement is a long-term pursuit, regularly tinkering with your investment strategy should largely be avoided. But at the same time, it’s important to frequently review how your investments are performing against your goals.

These goals often change as time goes on. For instance, you may be willing to take more risk than when you started your pension. On the flipside, with retirement edging closer, it can sometimes be prudent to consolidate the growth you’ve enjoyed over the years by moving into safer investments, especially if you’re aiming to buy a guaranteed income product, such as an annuity.

When starting a workplace pension, many select the default investment option offered by the scheme. You might now, however, be looking for something more specific. For instance, if you’re concerned about the impact of climate change, you can invest in companies actively seeking to address this issue.

Check your state pension forecast

A common assumption is that anyone and everyone is entitled to the state pension once they hit a certain age. This is not the case. To get the full state pension, you need to have paid qualifying National Insurance (NI) contributions for at least 35 years. Even to receive a basic state pension, 10 years’ qualifying contributions are needed.

At £185.15 a week for the current tax year, the full state pension provides a valuable source of retirement income, offering some much-treasured financial security. Gaps can appear in your NI record for several reasons. You may have taken a career break to raise children or look after an elderly relative, or perhaps lived abroad for a lengthy period.

The good news is that any holes can be plugged. The first step is to get a state pension forecast. If, after checking your NI record, you spot a shortfall, you might be able to make voluntary NI contributions to get yourself up to speed. You pay a fixed rate, which is currently £15.85 a week. While this may not be affordable right now, knowing where you stand will enable you to take corrective action once your finances improve.

Use a pension calculator

A cornerstone of prudent retirement planning is frequently establishing where your private and workplace pensions are in relation to your goals. Though this exercise alone will not provide an immediate boost to your pension savings, it can provide a clearer idea of what you need to do to reach your target income, helping to avoid any nasty shocks down the line. There are many available online including this pension calculator from Money Helper, a government initiative to help people better understand their money.

Whether you’re fast approaching retirement or still many years away, a pension calculator forecasts the annual income you can expect from your chosen retirement age if you were to use an income drawdown plan – it will tell you whether you’re on track or falling short. It’s important to be aware that the calculator only provides an approximate figure, not a guarantee, and makes several assumptions about your retirement years.

The value of advice

If you struggle to get your head around pensions, you’re certainly not alone. This is where expert advice can make all the difference.

At NorthStar Wealth Management, we can help to review your existing pension arrangements, take the time to understand your retirement goals and recommend a suitable strategy for you to achieve them. In addition, we can also help you to recover any pensions that have gone astray.

If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.

This article first appeared on Unbiased.