How to manage your pension for a better retirement

Written by
Tom Lamb
Time to read
4 minutes, 52 seconds

 

For many people a happy and fulfilling retirement is their ultimate reason for investing.

We believe the most effective way to reach that goal is by investing into a Pension – either through an employer’s Workplace Pension or a Personal Pension set up through a financial adviser or opened directly with a provider.

That’s because you can currently invest up to £40,000 per tax year into a Pension and get tax relief on your contributions from the government. For a basic rate taxpayer, that can boost your contribution from £800 to £1,000.

In this guide, we explain how effectively managing your Pension can help you do more with your money.

 

Set a clear goal.

When managing your Pension, you need to know the destination you are aiming for. The most important thing at the outset is setting your goal – at what age do you want to retire and how big of a Pension pot will you need?

To work out how to achieve this goal, think about your retirement age, and how long you envision being retired for, and the lifestyle you want in retirement.

For example, to retire at 65 for 30 years with an income of £20,000, you’d need a £600,000 Pension pot.

Once you have a goal set, you can then always see if you are ahead or behind target and manage your contributions to match.

 

Make regular contributions.

It seems obvious, but one of the most important aspects of managing your Pension is to regularly pay into your investment. If you have extra disposable money, it may be more tax efficient and worthwhile to put this into your Pension than a savings account. This ensures you are consistently getting closer to your goal.

It can be easy to put this off, as your retirement can seem so far away and you’d prefer the short term benefits of extra money. However, over a lifetime of compound growth it could make a big difference if you can pay in more to your Pension today.

Consider setting up a direct debit, or using a top up feature such as impulseSave® in the True Potential app to ensure you pay in regularly to your Pension – potentially meaning achieving your retirement goal sooner, or being able to retire with a bigger pot than originally envisioned.

 

Track your performance.

To manage your Pension effectively, it is worth regularly checking in on your performance. A Pension is for the long term, for decades of your life, but it is still useful to engage with what’s happening on a regular basis.

Tracking performance can help you to think about if you are invested in the right Portfolio, or if it could be worth investing some extra disposable income. For example, when markets are low, there may be the opportunity to invest at a lower cost, and benefit from subsequent growth when markets recover. Regularly tracking performance may help you to think about investing, although keep in mind it is impossible to time the markets, and consistent investing over the long term is the basis for building wealth.

 

Find and consolidate your pensions.

Over the course of your career, you’ll likely have several jobs, and as a result may end up with several Pensions.

This may mean that you’re paying multiple investment management charges, it may also mean you aren’t in the most optimal investment Portfolio.

Multiple Pensions also make it more likely you’ll forget or lose Pensions, leaving investments in the wrong attitude to risk profile, and even missing out on the wealth you’ve accumulated.

That’s why consolidating Pensions could make sense. By transferring all your Pension into one, you’ll then only have one charge, keeping more of your money towards investment growth. It’ll also be easier to track your Pension and attitude to risk, as everything will be in one place.

Before looking to consolidate your Pensions, you need to be aware that certain Pension policies can provide valuable guarantees or low charges that could be lost if transferred. For this reason, we would always suggest speaking to a financial adviser first, as Pension consolidation is not right for everyone.

 

Set up your beneficiaries.

 It is important that you manage your Pension’s legacy, thinking about what will happen to your wealth in the event of your death.

That’s why it is imperative that you fill in your Pension’s ‘Expression of Wish’. This names the person or people who will be the beneficiaries of your Pension.

This is a vitally important part of your financial legacy, as money passed on through a Pension generally isn’t considered part of your estate and isn’t liable to Inheritance Tax. A family member could inherit your Pension, choose to stay invested, and continue to grow wealth inter-generationally.

 

Speak to a financial adviser.

It may be best to speak with a financial adviser, they can help you to make better decisions around managing your Pension. By talking over your goals and aspirations, disposable income and other Pension pots you may find new ways to increase your wealth, retire earlier or reduce your tax bill.

A qualified financial adviser can also set you up with the technology and tools to better manage your Pension for your retirement and, if you wish, set up your legacy for future generations.

If you don’t have a financial adviser, get in touch with True Potential Wealth Management today to find out how we can help you do more with your money. Call us on 0191 625 0350 or email Contact@truepotential.co.uk

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Tax rules and allowances can change at any time. This blog is not personal financial advice.

 

Information correct as of December 2022

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