Pension booster

Back to News & Views

Mistakes to avoid when you’re aiming to build your pot

Many people are feeling the pressure on their finances at the moment due to the backdrop of rising inflation and the cost-of-living soaring. In these circumstances, it can be difficult to think about your long-term finances or even contemplate saving for the future.

However, even in the current climate there are ways to maximise the value of any pension savings you do have.

Free money from your employer

When offered the opportunity to join a workplace pension, it’s nearly always a good idea to do so. For most people, your employer must automatically enrol you in a workplace pension scheme, and you may even be offered a pension plan if you don’t meet the criteria.

Workplace pension schemes are made up of your own payments (5% or more of earnings) which are deducted from your salary, often before you pay tax, making it easier to save, and your employer’s contribution, which at the very least must be equivalent to 3% of your earnings.

Many employers offer more than this or match any extra payments you make so it’s worth checking if you’re getting the most out of this valuable benefit.

Extra money from the government

Anyone who decides against investing in a workplace or personal pension also turns down help from the government. That’s because in order to encourage people to save for retirement, the government provides a top-up called ‘tax relief’ to pension payments.

How you receive tax relief depends on the type of plan you have and the rate of income tax you pay. But as an example, if you’re a basic rate taxpayer saving into a personal pension in the current tax year, you get 20% tax relief on your payments. So, if you pay £200 a month into your pension plan, the £40 of tax relief you receive on that payment means it will only cost you £160. Higher rate or additional rate taxpayers could claim back even more.

Some workplace pension schemes offer tax relief in a different way, such as through salary sacrifice or exchange schemes, so check with your employer if you’re not sure how this works for you. And in Scotland, the tax relief details differ slightly. But in all these cases, the general point is the same: each time you defer paying into a pension plan, you miss out on an extra boost.

The State Pension will not to cover everything

Another common mistake is to assume that the State Pension will meet your retirement needs. However, it’s important to know that the State Pension won’t be available until your late 60s, and may not cover all of your outgoings.

Currently, the new flat-rate State Pension is £185.15 a week, or just over £9,600 a year. At the same time, the Pensions and Lifetime Savings Association (PLSA) calculates that a single person needs £10,900 a year for just a ‘minimum’ standard of living in retirement. This rises to £20,800 a year for a ‘moderate’ lifestyle, which includes a car and some help with maintenance and decorating each year.

Keep a track of all your pension plans

If you have moved jobs or home a few times, and not informed your pension provider, then one of these ‘lost’ pension pots could be yours. It’s worth spending time tracking down any potential missing pots to help boost your future finances.

The minimum contribution is unlikely to be enough

Auto-enrolment has boosted the pension savings of millions of people but the 8% minimum payment may not get you the retirement lifestyle you want. It’s important, therefore, to have a retirement lifestyle in mind – the PLSA calculations can be helpful here as they can give you a real figure to aim for, and you can then work out what’s feasible and put the necessary steps in place to help you achieve your goals.

Review your pension plan regularly

You might not want to talk about your pension plan every day, but dismissing pensions as boring is a mistake, and one that becomes increasingly serious over time. While this might be difficult at the moment, steps such as topping up your payments, especially in your 20s, 30s or early 40s, can make a large difference, thanks to the snowball effect of compounding.

Understanding your workplace or private pension, making sure you know how to get more ‘free’ payments from your employer or the government, or using it to pay less tax (such as through bonus sacrifice) could make a major difference to your long-term finances.

Understand where your pot is invested

A related mistake is not knowing where your pension pot is invested, whether that matches your life-stage and priorities or how to choose the right investment options. For example, if your retirement is still some years ahead, you could potentially afford to take a little more risk. Conversely, you may want to dial down the risk as you get nearer to retirement.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS
(AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

TAX TREATMENT VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES AND IS SUBJECT TO CHANGE.

Book your FREE, no obligation discussion today. Schedule Appointment

Sign Up to our mailing list - Receive regular news, tips and financial commentary from the Gemini Team.

Latest News

  • Providing an income for your loved ones to enjoy, long after you are gone If you’ve spent a lifetime saving for retirement, you’d probably like any remaining money to go to a loved one after your death. But whether pension benefits are payable to a beneficiary, and how they’ll receive them, is dependent on the type of pension you’ve chosen and how you’ve accessed it in your retirement. [...]

  • How much it will cost and how you are going to pay for it? People planning for retirement should think hard about what they want to do when they eventually stop work. It is helpful to have a good idea of the lifestyle you want, how much it will cost and how you are going to pay for it. [...]

  • Providing an income for your loved ones to enjoy, long after you are gone If you’ve spent a lifetime saving for retirement, you’d probably like any remaining money to go to a loved one after your death. But whether pension benefits are payable to a beneficiary, and how they’ll receive them, is dependent on the type of pension you’ve chosen and how you’ve accessed it in your retirement. [...]

  • Take control of your finances – 10 tips to enjoy the retirement you want [...]

  • Once the money is gone, it’s almost impossible to get it back Your pension is one of your most valuable assets, and for many it offers financial security throughout retirement and the rest of their lives. But, like anything valuable, your pension can become the target for illegal activities, scams or inappropriate and high-risk investments [...]

  • General guidelines that can help you determine whether you’re ready to retire One of the most difficult decisions you’ll ever have to make is when to retire. It’s a personal choice that depends on many factors, both financial and non-financial. There’s no single right answer, but there are some key things to consider that can help you decide if retirement is the right choice for you. [...]

  • 3 weeks ago

    More over 65s are still working than six years ago More people in the UK aged between 65 and 74 are still working compared to six years ago, new research shows[1]. The findings show there’s a marked increase in the number of people over 65 who remain in the workforce compared to 2016, and a fall in the number drawing their State Pension. [...]

  • Auto-enrolment: celebrating a decade that has encouraged a culture of saving  Since it was introduced ten years ago, auto-enrolment has revolutionised pension saving for millions of people in the UK, encouraging a culture of saving for the long term. It’s been a positive initiative and, crucially, individuals now have to take more responsibility for their retirement savings. [...]

  • More investors align investments with personal values Over the past few decades, there has been a growing interest and awareness in investing in companies that take into account environmental, social and governance (ESG) factors. [...]

  • More than one-million over-60’s are rethinking later life plans With people living longer lives and retirement now lasting up to several decades, the reality is that the majority of us will have to pay for later life care at some stage – whether that be for ourselves or loved ones. When there is no provision for this, it can have a potentially catastrophic impact on someone’s later life and wellbeing. [...]

  • 1 month ago

    Mistakes to avoid when you’re aiming to build your pot Many people are feeling the pressure on their finances at the moment due to the backdrop of rising inflation and the cost-of-living soaring. In these circumstances, it can be difficult to think about your long-term finances or even contemplate saving for the future. However, even in the current climate there are ways to maximise the value of any pension savings you do have. [...]

  • Minimising the impact on your personal finances If you’re a higher rate taxpayer, the freeze on the Income Tax threshold will have meant an increase in your tax bill. The reason for the increase stems from the Chancellor’s decision in April 2021 to freeze the higher rate tax threshold rather than increase it in line with inflation. With inflation running at a 40-year high, pay increases will mean more people are being pushed into the higher rate tax bracket. You pay higher rate tax on the portion of income that falls between £50,271 and £150,000 (or between £43,663 and £150,000 in Scotland). Higher rate tax is charged at 40% (or 41% in Scotland). [...]

Gemini Wealth Management Ltd is Authorised and regulated by The Financial Conduct Authority Registered in England & Wales No. 5919877 Registered Office: Gemini House, 71 Park Road, Sutton Coldfield, West Midlands B73 6BT The Financial Conduct Authority does not regulate tax and trust advice, will writing and some forms of buy to let mortgages. The guidance and/or advice contained in this website is subject to regulatory regime and is therefore restricted to those based in the UK.

Website by Mellow Marsh Software
© Gemini Wealth Management Ltd
Privacy Notice | Cookie Policy