Whether your pension pot is large or small, once you reach retirement age it doesn’t mean the game is up – there are still plenty of things you can do ramp up your retirement savings. Here are seven ways to maximise your pension pot to give it the best chance of lasting as long as you need it to in retirement.
1 - Are you entitled to pension credit?
Firstly, you should check whether you are entitled to pension credit.
What is pension credit?
Pension credit is a means-tested government benefit for retired people. It’s made up of two parts: guarantee credit, which tops up your income if it is low, and savings credit, which is an extra payment for those who have managed to save a bit for retirement.
At what age can I get pension credit?
You’ll need to be over the state pension age, which depends on your date of birth. State pension age is currently 66 for both men and women, but will rise to 67 in 2020 and 68 in 2021.
Do I qualify for pension credit?
If you live in the UK and your income is less than £167.25 a week as a single person or £225.25 as a couple, you could be entitled to claim guarantee credit. When assessing your claim, the government looks at all your sources of income and any savings and investments over £10,000. To qualify for savings credit, you need an income of more than £144.38 a week (£229.67 for couples), and you must have reached the state pension age before 6 April 2016 (and this applies to both people in a couple). The government says around 1.3 million households are eligible for pension credit but aren’t claiming it, meaning each family is losing out on £2,500 per year.
How much pension credit will I get?
Guarantee credit will top-up your income to £167.25 a week (£255.25 for couples). Savings credit could give you up to £13.72 a week (£15.35 for couples). The average amount claimants get is £58 a week, according to government figures. Usually, if you can claim pension credit you will also qualify for other benefits such as lower council tax, cold weather payments and free dental care.
How do I claim pension credit?
Call the government’s pension credit claim line on 0800 99 1234, visit Gov.uk or make a paper application. You’ll need your National Insurance number, information about your income, savings and investments, and your bank details.
2 - Consider delaying your state pension
If you defer (delay) claiming your state pension, you could get a higher amount when you do claim.
How long can you defer the state pension?
You can defer for as long as you like. You can even stop claiming even if you’ve already started drawing your state pension.
How much extra will I get it I defer the state pension?
It all depends whether you are on the basic state pension or the new state pension. If you reached the state pension age on or after 6 April 2016 (therefore receiving the new state pension) you could get a pension boost of 1% for every nine weeks you defer. This comes to 5.8% extra a year on top of your regular state pension. So if you claimed the full new state pension of £168.60 a week, by deferring for 52 weeks you would get an extra £9.74 a week, a total of £506.48 for the year.
If you reached the state pension age before 6 April 2016 (therefore receiving the basic state pension) you can choose to receive a lump sum or higher weekly payments (you also get interest of 2% above the Bank of England base rate if you defer for at least a year).
Your state pension increases for every week you defer, as long as you defer for at least five weeks. You get an extra 1% for every five weeks you defer, equivalent to a 10.4% rise per year. If you claimed the full basic state pension of £129.20 a week, by deferring for 52 weeks you would get an extra £13.44 a week, which works out to £698.88 a year. The actual amount you get will be more because of the ‘triple lock’, which guarantees that the basic state pension will rise each year by 2.5%, the rate of inflation or average earnings growth, whichever is largest.
Try a deferred pension calculator to see how much you could get and whether it’s worth delaying your claim or not.
Should I defer my state pension?
It really depends on your own circumstances. Some people will be better off by deferring, whereas others won't and so the decision is ultimately yours. We have highlighted some of the pros and cons of deferring your state pension below.
- It’s worth considering if you have other sources of income such as a private pension or rental income, or salary if you’re still working past retirement age.
- It could work in your favour if you are in good health
- You pay tax on the income from your state pension as well as your salary so, if you can afford to do without it, it makes sense to defer until you stop working to reduce your tax bill.
- If you are receiving benefits you may end up worse off – you may not be able to claim extra state pension by deferring if you already claim benefits such as income support, pension credit or universal credit, or it may reduce the benefit payments you can get.
- Think carefully about deferring if you are in poor health. If you defer for 52 weeks and are on the new state pension you would qualify for an extra £506.48 per year. Remember though that you would have earned £8,767.20 in pension benefits that year. That means you need to survive at least 18 years to make deferring a pension worthwhile.
How do I defer my state pension?
You don’t have to do anything, your pension is automatically deferred until you claim it. Claiming a deferred state pension online is easy, just visit the Gov.uk website to get started.
3 - Pay missing NI contributions
Paying voluntary National Insurance (NI) contributions to fill in any gaps in your NI contributions record (for example, because you were living abroad, self-employed, a low earner, or out of work but not claiming benefits) can boost your state pension. This is because, if you have any missed contributions, you may not have built up enough state pension qualifying years – currently 35 – to claim the full pension (you need 10 years of NI payments to qualify at all).
Paying voluntary contributions means you are effectively buying additional state pension years. Whether it is worth it or not will depend on how long you live while claiming your state pension, so it is a bit of a gamble. And of course you must check you are definitely eligible to get a pension top-up by paying missed NI. But after you’ve recouped your initial outlay, you would continue getting that extra state pension for the rest of your life, so it could be a good idea for some, especially those nearing state pension age.
Am I eligible to top up my NI contributions?
To see if you’re eligible to pay voluntary NI contributions you should get a state pension forecast by checking your NI contributions on the Gov.uk website. Usually you can only pay for gaps from the last six years, although there are some exceptions.
How much does it cost to top up my NI contributions and is it worth it?
For the 2019/20 tax year, Class 2 contributions cost £3 a week and Class 3 contributions £15 a week. Say you qualified for the new state pension and you paid your Class 3 contributions for a full qualifying year at a cost of £780, this would be worth an extra £4.80 a week, or £249.60 a year. So within four years you would have recouped your outlay in NI, but you’d get the extra from your state pension for the rest of your life, so it’s probably worth doing if you’re in good health and expect to live a good few years in retirement.
4 - Can you get an impaired or enhanced life annuity?
An annuity is a retirement income product you can buy with some or all of your pension pot and which gives you guaranteed regular income for life or a set period. There are types of annuity which give you a higher guaranteed income if you expect to have a shorter life expectancy. An enhanced annuity is for people who meet certain criteria which could reduce their life expectancy, such as smokers, diabetics, or people who have worked in hazardous conditions throughout their working life. You will usually have to fill out an enhanced annuity questionnaire to assess whether it’s suitable for you.
An impaired life annuity is for people who have a medical condition which will reduce their lifespan. The annuity rates on offer will be based on an estimate of how long you will live. You could get an annuity income that’s 20%-50% higher, in recognition of the fact that you won’t live as long – usually these are for people with five years or less to live. You could try using the free annuity calculator provided by the Money Advice Service in order to work out how much you could get.
5 - Consider pension drawdown
Make your pension pot last longer by looking carefully at your pension drawdown strategy, whether you’ve already started withdrawing money or not.
How does pension drawdown work?
Very briefly, pension drawdown (sometimes referred to as income drawdown) is when you use a drawdown product to take an income from your pension pot while still keeping the rest of it invested. Pension drawdown rules allow you to take a 25% lump-sum tax free, and to take income flexibly as and when you need it. This is an advantage because it can help you with tax planning. For example, you can delay drawing down income if it would push you into a higher tax bracket during a given tax year.
You can also use a well-managed drawdown product to make the most of your pension pot by remaining invested (in line with your risk profile of course) so it continues to grow and will hopefully keep meeting your income needs for years to come. To hang on to as much of your pension as you can, make sure your pension drawdown charges are competitive and you’re not overpaying. Check out our article How to compare the Best and Cheapest pension drawdown provider.
Try using a free online pension drawdown calculator to help you work out how much income you can safely take out of your pension pot to make sure it lasts as long as you need it to in retirement. To find out more about pension drawdown check out our article What is pension drawdown and how does it work?
6 - Look for lost pensions
There are 1.6 million ‘lost’ pension pots in the UK worth more than £19bn, according to the Association of British Insurers, equivalent to about £13,000 per pot. With people having on average 11 jobs in their lifetime, it’s not surprising many have a lot of small pension pots from years ago that they’ve lost track of, especially if they’ve moved house and not updated their details with the scheme provider.
For an easy way to boost your current pension, find lost pensions using a free service from the government which finds contact details for workplace or personal pension schemes.
You can then contact the scheme provider with your National Insurance number to try to trace your pension. You could also try digging out old statements or payslips detailing deductions for pension contributions.
A consolidation service like PensionBee helps you find multiple pension pots which you can then transfer into one of its low-cost pension plans and manage online through its platform. To find out more about PensionBee read our detailed PensionBee review.
7 - Claim your tax relief
Boost your pension by making sure you’re claiming tax relief on pension contributions you make. Pension tax relief is a government top-up which rewards you for saving for your retirement by putting the money you would have paid in income tax on your earnings directly into your pension pot. The rates of pension tax relief are the same as the income tax rates, so 20% basic rate, 40% higher rate and 45% additional rate. So, when a basic rate taxpayer puts £100 into their pension, it only costs them £80 because they get a £20 top-up from the government.
But, for higher rate taxpayers, a £100 contribution would only cost them £60. The problem is that they need to reclaim £20 of this under a ‘cashback’ system rather than their pension provider claiming automatically on their behalf. If you are a higher rate or additional rate taxpayer and a member of a ‘relief at source’ pension scheme, it’s up to you to claim the full tax relief to which you are entitled. A lot of people don’t realise this so they could be missing out on a substantial amount of cash. Importantly, you can claim tax relief on pension contributions for previous years, but you must do it within four years of the end of the tax year for which you are claiming.
There are pension tax relief calculators online which can give you an indication of how much you could get. The maximum amount of contributions on which you can earn tax relief is called the pensions annual allowance and is currently £40,000 for the 2019/20 tax year. To claim, you’ll either need to register for self-assessment and fill in a tax return each year or contact HMRC with details of your scheme and contributions you have made.
Hopefully these tips will help you turbo-charge your pension pot, but bear in mind there are also other ways you could save money and have a better quality of life in retirement. Check you are claiming all the benefits to which you are entitled, such as winter fuel payments, help with council tax or housing costs, travel on public transport and free prescriptions – try the benefits calculator at entitledto.
If you are unsure about anything relating to your pension, it’s always wise to take professional advice from a qualified financial adviser. In fact, paying for good advice is an outlay which could pay off many times over in terms of the boost it could give your pension pot. Read our article's Do I need a financial adviser to cash in or transfer my pension and How to find an independent financial adviser.
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