From switching current accounts to seeking out dividend-paying funds, Moneywise rounds up 50 top tips to boost your income by making your savings work harder for you.
Here are 10 ways to boost your savings by boosting your retirement income. See the our guide 50 ways to boost your savings income for the rest.
41. Get free cash from your employer
Not joining your workplace pension is effectively saying no to a pay rise. Under auto-enrolment rules, your employer must pay 2% (from April this year) of your qualifying salary into a pension alongside your minimum 3% contribution – but you won’t get your employer’s contribution if you opt out. Some employers will pay more, often matching what you pay, subject to a cap.
42. Get free cash from the government
To encourage us to save, you also get tax relief on your pension contributions equivalent to your rate of income tax. This means it costs basic-rate taxpayers £80 to save £100 and just £60 for savers paying the higher rate.
43. Max out pensions
The combination of tax relief and employer contributions makes pensions the most sensible way to save for retirement and boost your eventual income. Each year, you can save up to 100% of your earnings, subject to a £40,000 cap. The lifetime allowance limits the amount you can accrue before tax penalties apply. From April 2018, this is £1.03 million (up from £1 million). It might feel like a squeeze now, but your older self will thank you for it when you retire on a substantially higher income.
44. Don’t treat your pension like a piggy bank
From the age of 55, you can take ad hoc lump sums out of your pension (‘uncrystallised fund pension lump sums’), and many people do, whether it’s to do work on their homes or help family members. However, just because you can access this pot that doesn’t mean you should. The more you take out while you are still working, the less you’ll have to generate an income when you retire. You will also pay income tax on it, as only the first 25% of a withdrawal is paid tax free. It is worth noting that if you access your pension the amount you can pay in each year is reduced from £40,000 to £4,000. Bear this in mind if you plan to bump bonuses or other windfalls into your pension in the final years of your career.
45. Think twice before you take your tax-free cash
When you go into drawdown or buy an annuity you have the opportunity to take 25% of your pension as a tax-free lump sum. This is useful if you have some big expenses, but again you need to consider the impact it will have on your income. According to retirement income specialist Retirement Advantage, the average annuity income for a 65-year-old with a £100,000 pension pot is £5,350 a year. However, if 25% tax free cash was taken and they only had £75,000 left to buy an annuity they would only get an income of £4,012 a year.
46. Shop around for annuities
Whether you are using all or some of your pension to buy guaranteed income, it’s essential to shop around for the best deal. Also declare any health problems or habits (such as smoking) that will reduce your life expectancy. It could boost your income by as much as 30% to 40%, depending on your circumstances.
47. Keep your expectations realistic
You may choose to keep your pension invested in retirement and draw an income from it. However, if this money needs to last for life, you must not withdraw more than you can afford. Research by Retirement Advantage suggests that while people think they can afford to withdraw 7% a year, a sustainable rate is likely to be closer to 3.5%. As soon as you withdraw more than your pot’s natural yield, you start eating into capital, at which point its ability to generate income starts to reduce.
48. Consider deferring your state pension
You do not have to claim your state pension as soon as you are eligible. If you reached state pension age after 6 April 2016, you get an uplift of 1% for every nine weeks that you defer. This works out at 5.8% over a year and provides an additional £479 every year. The deal is better for people who reached state pension age before 6 April 2016, who get 1% for every five weeks deferred, providing an uplift of £661 a year. Whether this makes sense for you ultimately depends on whether you live long enough to recoup lost payments during the period you deferred. If you have already started claiming state pension, you can still defer and restart it at a later date.
49. Track down lost pensions
The average person has 11 jobs over their working life, according to the Department for Work and Pensions, and over time it’s easy to lose track of some of the schemes you’ve paid into. Indeed, the government department reckons there’s some £400 million languishing in lost pension plans. If you’ve lost track of a pot, contact the Pension Tracing Service to reclaim it, on 0800 1223 170 or at Pensiontracingservice.com.
50. Buy Moneywise magazine…
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