Thought so …
On the whole, people aren’t interested or enthused by the topic of pensions.
They seem complicated. Admin-heavy. Pensions conjure up images of a life chapter that most of us aren’t ready to entertain. There’s often a fear to leap that far ahead in time … let alone consider the financials of it all.
But taking charge of one’s pension, now, means seizing the initiative. It means add-ons, benefits and free money. It means compound interest and tax breaks. It means planning a later life where work is a choice and options are available. It’s a design for later life; leaving fewer things to chance.
It’s not so hard to take control. Here’s the how …
The basics
Step one: how much and when? If you’ve got at least 10 qualifying years on your National Insurance record then you’re eligible for some level of state pension. The amount in question and the age at which you can access it depend on multiple factors – so it’s best to check where you stand. Click here to do that.
Step two: what? There ain’t no jobs for life nowadays so most of us have several different pensions in several different places. They mightn’t be worth much on their own, but their sum total at retirement may surprise you.
With that, keep your contact details up-to-date for each pension and ensure you get at least an annual statement for each.
Step three: where? Step two assumes you know where your pensions are but many of us have absolutely no idea. Show of hands? There’s circa £20 billion in lost UK pensions and some of it could be yours. Use the Pension Tracing Service to track down yours.
The optimisation
Step four: contributions (you and your employer). Once the basics are in place — and you know how much, what, where and when — it’s time to lean on the benefits and top up to the max.
For example, if you’re employed (and haven’t opted out) you should be receiving an employer pension contribution of at least 3 percent. This is the minimum, but some employers offer more; often called contribution-matching. This is exactly what it sounds like so go ask the question and see what’s possible.
Step five: tax relief. If you pay income tax at 40% (on income over £50,271) you may be able to claim extra tax relief on your pension contributions.
A lot of folks aren’t aware this is possible, as evidenced by the fact that circa £1.3 billion in tax relief went unclaimed over five years. How does one claim what’s theirs? By completing a tax return or by contacting HMRC.
First thing’s first
There’s so much more we could add on the topic of pensions, but it can be a bit overwhelming. We’ll stop here.
We will revisit the subject in the future but, for now, see if you can get a handle on the basics (steps one through three) by the time next Friday comes around.
What happens next Friday? Well, another blog. Obvs.