Five ways to give your pension some love

Five ways to give your pension the love and attention it deserves so you can have the retirement future you want.

Your pension has the potential to be one of your most valuable assets, even taking into account your house, and it could make all the difference to your lifestyle in later life. So it’s important you give it regular love and attention, whatever your age. abrdn’s financial planning expert Shona Lowe shares five things to consider when it comes to giving your pension a little love.

1. Make sure you’re on the same page with your pension

Gauging whether you’re on track to meet your retirement savings target is key. Regardless of your age, it’s important to roughly forecast this and have a plan to work towards. Much like a relationship, if you’re not on the same page, things could go off track. So working towards a set goal will make things much more achievable.

Working backwards, you should estimate how much you think you’ll need in retirement each year. And remember that retirement can last 30 years or more, so what you save up has to go a long way. Don’t forget though that what you have now will change in value and hopefully grow over time, although the value of your pension investments can go down as well as up and you could get back less than was paid in.

2. Put in as much as you can

Your pension is a very tax-efficient way to save for your future thanks to tax breaks on what’s paid in. However, the amount of tax relief you get will depend on the rate of income tax you pay and the type of pension plan you have.

Basic rate taxpayers get 20% added to their pension contributions in tax relief. And if you’re a higher or additional rate taxpayer, you can benefit from an addition of 40% or 45%. (Remember that tax rates differ in Scotland.)

You can normally contribute up to £60,000 each year into your pension (known as the annual allowance) and still benefit from tax relief. It can be less than that though if your income is more than £260,000, or if you’ve already started taking money from your pension savings. If either of those applies to you, you might want to consider getting professional advice.

3. Try not to rush into anything

The rising cost of living is a big issue for many people right now. But, if possible, it can make sense to avoid dipping into your pension pot or reducing what you’re paying in.

A pension pot’s purpose is to cover you financially in later life, and you can benefit more from any investment growth if you have as much in there as possible. Withdrawing money early reduces your pot size and takes away some of what could grow, particularly if you take money out when investment returns are low. It might help to plug a gap in the short term, but you could lose out in the longer term.

4. Bring your pensions together

When you have several pension pots, things can become complicated. It can be hard to keep track of how much money you have in each and what they’re likely to pay you in retirement.

There are an estimated 2.8 million lost pensions in the UK, worth around £26.6 billion.* So combining yours into one plan could help ensure that nothing gets forgotten. Don’t rush into this though – you might have valuable benefits in a pension that could be lost if you move out of it. And consolidating pensions isn’t right for everyone.

To track a lost pension down, you need to know the name of your employer or pension provider. Don’t worry if you don’t have this information though - you can use the government’s online pension tracing service.

5. Don’t be afraid to get support

If things aren’t working out in your relationship, you’re likely to speak to someone you trust. And the same should go for your pension, whether that’s speaking to a loved one or getting professional financial advice.

A financial adviser can help make sure you have a plan for your financial future that takes all your goals and plans into account – allowing you to concentrate on what you enjoy doing.

Find out how abrdn's financial planning services could help with your retirement planning.

ii is an abrdn business. abrdn is a global investment company that helps customers plan, save and invest for their future.

You can also get free and impartial guidance from Pension Wise, either face to face or over the phone. However, they won’t be able to give advice that’s specific to your circumstances.

*Source: Pensions Policy Institute, 2022.

The information in this article should not be regarded as financial advice. Information is based on our understanding in May 2023. Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment. The value of investments can go down as well as up and could be worth less than was paid in.