Strategies to boost your retirement

Strategies to boost your retirement

10 ways to build a bigger pension income

Look at some of the ways in which you could secure a
financially brighter retirement.

1. Start saving for your retirement early
It may seem really obvious but the younger you are when you start a pension, the better, because it means you’ve got more time to make contributions and there is more time for those invested contributions to grow.

2. Join your employer’s occupational pension scheme
If your employer offers membership of an occupational pension scheme, join it. These are employer-run schemes that have trustees who are responsible for the schemes being run properly, legally and fairly. If your employer has a scheme, it is almost always in your interests to join because of the employer contribution, which is in effect a tax-free benefit.

3. Take advantage of tax relief from HMRC
Make the most of tax breaks. Tax relief reduces your tax bill or increases your pension fund. Anyone, including children and non-taxpayers, can receive tax-relief from HM Revenue & Customs (HMRC) to help increase their pension. Contributions attract basic-rate tax relief. So £80 paid into a pension is automatically increased to £100 before costs. High earners can achieve the same effect by paying in £60, subject to complex and changing restrictions.

4. Increase the control over where you invest your money
Unlike most traditional personal pensions, a Self-Invested Personal Pension (SIPP) offers you different investment options and gives you more choice and control over where you can invest your money. There are significant tax benefits. The government contributes 20 per cent of every gross contribution you pay.

5. Pay extra National Insurance contributions
Consider paying extra National Insurance contributions (NICs) to increase the state pension. This is most likely to benefit women who have taken time off work, perhaps to bring up children. However, you need to beware of means tests.

6. Make additional contributions to increase your retirement fund
Topping up an Occupational Pension Scheme pension is one of the simplest and most effective ways of cutting your tax bill and increasing your retirement fund. An Additional Voluntary Contribution (AVC) is an extra pension contribution you can make if you are a member of your employer’s Occupational Pension Scheme. 

7. Take advantage of the Open Market Option (OMO)
When you are nearing retirement, your pension provider will usually send you a quotation regarding your pension scheme. It’s important you take advantage of the Open Market Option (OMO) to maximise your pension fund. The OMO is a legal right to buy a pension annuity from any provider on the market. Choosing the right pension annuity is extremely important, because once purchased, annuities cannot be switched to another annuity provider or altered in any other way.

8. Buy an annuity that pays out a higher income
If you enter retirement with a medical condition, or if you smoke, you could be eligible for an enhanced or impaired-life annuity. They work on the basis that you will have a shorter life-span than someone in a better state of health, essentially enabling you to use up your pension fund more quickly by giving you access to more money each year.

9. Different retirement income alternatives
There are alternatives to purchasing annuities, including income drawdown, which enables older people to withdraw small amounts of their retirement money annually as income and then leave the rest invested in the stock market with the aim of achieving better returns, although this is not guaranteed. Another option is ‘phased retirement’, where, rather than converting your entire fund into an annuity at the same time, you take the benefits of your pension gradually over a period of time, either by setting up an annuity or moving more money into income drawdown.

10. Get advice about the annuity rule changes
It has long been the case that anyone with a personal or company ‘money purchase’ pension had to purchase an annuity with their pension fund by the age of 75 (current temporary measures to age 77). But the Chancellor of the Exchequer, George Osborne, announced during the Coalition Budget 2010 the removal from April 2011 of the effective obligation to purchase an annuity by age 75. Consultations on these proposed changes are continuing and final rules are awaited.

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