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How do I grow my pension?

When you stop working, your pension savings play a significant role in providing financial security. Read our guide to learn how you can boost your pension income and grow your pension effectively

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While change is inevitable, growth is often intentional.

The transition from work to retirement marks an inevitable life change. But building a nest egg big enough to retire and make the most of your golden years is not inevitable.

Growing your retirement fund requires intentional effort.

In this article, we explore some of the strategies to boost your pension income and help you build a more secure financial future.

How pensions work

Your pension provides a reliable source of income when you retire. The way they work is straightforward.

Workplace pension schemes and private pensions are typically defined contribution pensions.

With this type of pension, you pay money to the pension provider, which is then put into an investment fund with the aim of growing over time. These funds are also known as your pension pot.

Your pension pot’s value will change based on the performance of investments and the amount of time you are invested. While there is no fixed retirement age, you can access your pension retirement savings from age 55.

Although rare now, defined benefit pensions work differently from defined contribution pensions.

These can usually be accessed at 65 or your State Pension age and provide a fixed income for life. The amount you get is based on either:

  • The average amount you earned throughout your career or;
  • The salary you made when you retired

Why it is important to boost your pension income

With the cost of retirement increasing, ensuring you are financially prepared is more important than ever.

Your pension savings are a crucial component of your retirement planning strategy.

Pensions act as one of the primary sources of income for life after retirement, providing financial stability. They can also be one of the most tax-efficient ways to save for retirement.

So the more you can boost your pension income, the better position you will be in once you stop working.

How do I boost my pension income?

How to boost your pension income

Whether you are years or decades away from retiring, there are ways to help build a healthier pension pot.

Here are some of the strategies to help boost your pension savings.

1. Increase pension contributions

We will start with the most obvious and straightforward way to boost your pension income – increasing how much you contribute.

Not only will this increase the amount in your pension pot, but it will also allow it to grow over time. That is because defined contribution pension schemes are essentially long-term investments. Their annual growth rate is based on market performance.

But while putting in more to your pension fund can help it grow, there is a limit to how much you can add before you pay tax in some jurisdictions.

For example, in the UK, your annual allowance is the amount you can save each tax year (6 April to 5 April) before you pay tax. The current annual allowance is £60,000. The allowance may be lower for those who earn higher salaries (typically above £200,000).

2. Benefit from tax relief

The money in your pension pot benefits from tax relief. This means that some of the money you add to your that would otherwise have gone to the government as tax goes into your pension fund.

In the UK, the amount of tax relief you get depends on your tax bracket.

  • Basic-rate taxpayers – 20%
  • Higher-rate taxpayers – 40%
  • Additional rate taxpayers – 45%

You only get tax relief on pension contributions worth up to 100% of your annual earnings.

3. Maximise your State Pension

While the State Pension alone is likely not enough to support you financially, it can add to your overall retirement income.

The State Pension is based on your National Insurance Contributions (NICs). You need at least 10 full years of NICs to receive any State Pension and 35 years for the maximum amount.

You can fill in any gaps and add ‘qualifying years’ to your National Insurance record by making voluntary contributions. At the current rates, every qualifying year adds up to £302.64 to your annual pre-tax State Pension.

You can typically only fill gaps for the previous six tax years. However, until 5 April 2025, the government is letting you fill gaps in your National Insurance record all the way back to April 2006.

Until 5 April 2025, any gaps you fill are also charged at the 2022-23 rates. Those rates are as follows:

  • Class 3 NICs – £824 per year
  • Class 2 NICs – £164 per year

To find out more, read our article on State Pension top-ups.

4. Combine pension pots

If you have switched jobs, you will likely have multiple workplace pensions.

Consolidating your pensions into one pot can make managing and monitoring performance much easier. Not only that, it could also reduce the amount you pay in fees.

This strategy is not always the best option. You should speak with an expert first, who will advise you based on your situation and goals.

5. Rethink your pension investment strategy

You can typically switch to different funds with a defined contribution pension scheme. The amount of control you have over where your money is invested depends on the pension scheme.

While you are young, switching to a higher-risk fund gives your money the best growth potential. The trade-off here is the potential for losses also increases.

Switching to higher-growth investments as a way of increasing your pension amount can be risky, especially in the run-up to retirement. That is because you have less time to compensate for any losses at this stage.

Supplementing your pension

As well as boosting your pension income, there are ways to supplement it by generating additional revenue streams, such as a passive income.

A passive income is a source of revenue you receive with little to no input beyond the set-up process. Once up and running, the money generated from a passive income source has the potential to supplement your retirement income.

Passive income sources come in all shapes and sizes; some require more input than others to manage.

Some examples of passive income streams include:

  • Rental income from property investments
  • Stock market investments
  • Bond investments
  • High-yield savings accounts
  • Annuities

Retirement planning with Holborn Assets

Pensions play a vital role in your retirement planning strategy.

Knowing how to boost your pension can help ensure your pension funds grow steadily over time, providing financial stability during your golden years.

If you are ready to get started on the road to a more secure financial future, we can help.

At Holborn Assets, our expert financial advisers offer the guidance and support to help you plan for retirement effectively.

We do not take a one size fits all approach or provide off-the-shelf advice. Instead, our financial advice is tailored to your individual circumstances, needs and goals.

Book a free, no-obligation meeting today and learn how we can help you reach your retirement goals.

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