How to increase your pension pot as you approach retirement

21 February 2024

Your pension fund could play a crucial role in securing financial stability during your retirement. Finding ways to increase your pension pot over the coming years will help to ensure a more comfortable retirement and prevent an income shortfall from blighting your golden years. 

This article will provide valuable insights and strategies to help you boost your pension savings in your fifties and sixties. The good news is that it’s never too late to start saving or boost your existing pension savings.

How can you boost your existing pension funds?

Many of us wish that we had started saving into a pension scheme earlier in life. We know that the power of compound interest may have significantly boosted our retirement savings over time. 

In the absence of a time machine, finding ways to increase your existing pension savings is the only real course of action once you enter your 50s and 60s. To help you achieve this, here are the main ways you can increase the amount you have for your retirement:

Contribute regularly

Consistency is key when it comes to pension contributions. Regularly contributing a portion of your income to your pension pot ensures that you steadily build your retirement savings. 

If you are employed, the UK's auto-enrolment scheme makes it easier to contribute by automatically enrolling eligible employees into a workplace pension. 

However, you can always choose to contribute more than the minimum requirement to bolster your savings. You may also consider paying in more money if you experience a windfall such as an inheritance or redundancy payment. 

If you are self-employed, you can set up your own private pension scheme or a self-invested personal pension (SIPP) to save for your retirement. You’ll benefit from top-ups to your contributions thanks to the basic rate tax relief that your provider will claim on your behalf.

How much your fund is eventually worth at retirement will depend on the total you pay in, how much tax relief you receive, how well your investments perform, and the level of charges you pay.

Take advantage of employer contributions

Many employers offer contributions to your pension fund as part of their employee benefits. Some even match how much you pay in, which effectively doubles your savings.

Make sure you're aware of your employer's policy and maximise your contributions to capitalise on their contributions. By doing so, you can significantly increase your pension pot without any additional effort.

If you are self-employed with a private pension scheme then you won’t receive employer contributions, but you will benefit from government top-ups in the form of tax relief. The tax breaks you receive mean that basic-rate taxpayers get an extra £25 added for every £100 that you pay into your scheme. Higher-rate taxpayers will receive even higher amounts to top up their contributions.  

According to Money Helper, just 31% of self-employed workers save into a pension, out of around 4.5 million self-employed people in the UK - or 15% of the UK workforce. That equates to millions of people missing potential tax break top-ups to their pension savings!

Increase contributions as your earnings rise

As your career progresses, you'll likely experience increases in income. This is could be an ideal time to increase your pension contributions. If you avoid the temptation to increase your spending in tandem with your higher earnings you can instead divert a portion of the additional income towards your pension. 

A recent study by The Institute for Fiscal Studies found that almost 1 in 4 self-employed workers actively saving for their retirement choose to save a set monetary amount each month or year. It reveals that the typical amount they opt for is £50 a month (£600 per year), with many rarely changing the amount.

The simplest way to ensure your pension contributions stay in proportion to your earnings is to select a percentage of your earnings to save, rather than a fixed monetary amount. As your earnings increase, so will your pension contributions. 

It can be an easy and effective way to supercharge your fund whilst keeping inflation from eating away at the real value of your pension pot.

Benefit from tax relief

Saving into a pension scheme means you benefit from tax relief, though how much relief you receive depends on your current tax bracket. 

Basic-rate taxpayers get tax relief of 20%, so for every £80 you pay in, the government tops this up by £20. Higher rate taxpayers get tax relief of 40% (a £40 top up for every £60 put in), and additional rate taxpayers get 45% relief. 

This makes saving into a pension scheme far more effective than simply putting your money into a savings account, which could see the real value of your money eroded by inflation.

Consider salary sacrifice

Salary sacrifice is a tax-efficient way to boost your pension savings. By agreeing to sacrifice a portion of your pre-tax salary and directing it into your pension, you reduce your taxable income whilst boosting your pension pot. This means you save on both income tax and National Insurance contributions. 

You may wish to consult with a financial advisor or HR department before setting up a salary sacrifice arrangement to ensure it will suit your financial goals.

Consolidate your pensions

If you have had a number of employers over your career then you may have accumulated a few pension pots with different scheme providers. You can combine these into one, manageable scheme by consolidating your pension pots. 

This will help you to more easily monitor your money’s performance. It may also widen your investment options and potentially even reduce the fees you pay, ultimately resulting in a boost to your pension fund.

It’s not for everyone, however. Potential drawbacks include the loss of valuable benefits that your existing scheme/s may offer. The government-backed Money Helper website has useful information about consolidation. You may also wish to seek specialist guidance or advice before making a decision. 

Other tips for boosting your pension fund

In addition to increasing how much and how often you pay in, and taking advantage of employer contributions, there are some other ways you can boost or protect your pension fund:

Monitor your investments

The performance of your pension investments can significantly impact your pension pot's growth. You may therefore wish to regularly review and assess your investment choices within your pension fund. Diversifying your investments can help spread risk and improve the potential for growth. Remember to seek professional advice if you're unsure about your investment options or risk tolerance.

Avoid taking early withdrawals

In some cases, you may face financial difficulties or be tempted to take an early withdrawal from your pension. While it's nice to have a financial safety net, dipping into your pension pot prematurely can significantly hinder your long-term financial security. Early withdrawals may also come with hefty taxes and penalties, so it's advisable to explore alternative financial solutions before resorting to your pension.

Remember, your pension pot is an investment in your future. With careful planning and dedication, you can build a substantial nest egg to enjoy during your retirement years.

Search around for the best deals

When you do come to access your pension savings in later life, make sure you thoroughly research your options before doing so. For instance, if you go down the pension annuity route then you might achieve a higher income for life by opting for an enhanced annuity. 

Remember, you don’t have to purchase your annuity from the scheme provider that holds your pension pot. Shopping around to find competitive annuity rates is essential if you want to get the most from your fund.

<< Use this free online tool to work out how much income you could achieve from your pension fund >>