- lower your outgoings where possible
Getting started can be as easy as drawing a line down the middle of a piece of paper, and detailing your monthly income to the left and your monthly outgoings down the right. Add them up, and you will see how much money you’ve got left at the end of the month (which you could pay into your pension).
You will also pinpoint where you’re spending your money, so you can think about cutting costs.
A few ways you can reduce your monthly outgoings includes:
- Make sure you are enrolled in the workplace pension
If you’re aged over 22 and earn more than £10k a year from 1 job, you’ll be automatically enrolled into your company’s workplace pension. This is what’s known as Auto-Enrolment. If you earn below £10k you can still ask to be enrolled, it simply won’t happen automatically.
With Auto-Enrolment, your boss is required to pay at least 3% of your qualifying earnings into your pension, and you need to contribute 5%.
If you have not been auto-enrolled, or you have previously opted-out, you’re pretty much missing out on FREE money in the form of your workplace contributions. In addition, for every £1 you contribute, the government tops it up with 25p as a tax benefit (or more if you’re in the higher earner tier). You can choose to be opted in simply by asking your employer – they’re not allowed to refuse, by law.
- Working for a firm with a generous pension
Each company will have their own pension policy, which in turn means they could be paying in anything from the base 3% to 10% of their staff salaries or perhaps more.
So, the next time you search for a new job, be sure to enquire about the pension scheme that employer offers. Even just a 1% increase in contributions can result in a noticeable difference to your future pension income.
- Set up your own personal pension if you are not working
If you are not working, but perhaps you have some money set aside, you might consider starting your own personal pension.
I spoke to a chap recently from a financial advisers near me and he told me that, unlike a workplace pension, you won’t get an employer top up. But you should still receive the 25% government top up, which in turn means £1.25 will be paid into your pension for everysingle £1 you pay in. So it’s still a far better return than dumping your money away in a bank account.
With that said, bear in mind that you can’t access any of the money you have paid into your pension until you retire. So you will want to make sure you have an adequate emergency fund that you can get your hands on before paying into a pension.
- Be careful of pension provider fees
Pensions are usually managed by pension providers who charge annual fees for their service. Other providers quite often charge a range of fees for a variety of things. The important thing to take note of is that the total amount of fees will differ depending on the pension plan and provider you choose.
If you are searching for a new pension, pay close attention to fees. Research carried out by our pension advice team shows that even a figure as small asa 0.50% increase in fees can reduce a pension pot’s overall value by over £10,000.
- Are you eligible for extra help?
You could be eligible for some extra support from the government, for example income support, housing benefit, child tax credits, working tax credits and council tax reduction.
The basic figure of working tax credit is capped at £2,005 per year, but the exact figure you will receive totally depends on your income and situation.