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Advice Rooms Top Tips for Maximising Your Pensions

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As winter begins to fade and the promise of spring emerges, it’s the perfect time to shake off the cobwebs and get your finances in order. At Advice Rooms, we believe that proactive financial planning is key to securing a brighter future.

With that in mind, here are some top tips to help you make the most of your pensions and ensure a secure retirement:

Pension Review – Regularly Review Your Pension(s):

Reviewing your pensions with a financial advisor is crucial to ensure you have the best pension policy for your circumstance. A professional review will ensure your pension has a suitable fee structure and can uncover any hidden charges, ensuring your pension funds aren’t unnecessarily depleting.

Additionally, a financial advisor can align your investment strategy with your attitude towards investment risk, maximising the potential for growth while mitigating any unnecessary risk. It is also important to understand whether your pension offers the desired retirement options, such as a flexible drawdown or being able to contribute in the way you desire. By using the expertise of a financial advisor, regular reviews can look to optimise your pension’s performance and ensure any recommendations made stay relevant to your circumstance.

Pension Contributions -Maximise Your Contributions for Tax Relief:

How do pension contributions work? Well, used in the right way pensions are the most tax-efficient way of saving for retirement due to the pension tax relief benefits. The pension tax relief system is designed to incentivise individuals to save for retirement.

Here’s how it works:

Basic Rate Tax Relief

Individuals receive basic rate tax relief on their pension contributions, which means that for every £1 contributed to a pension scheme, the government adds an additional 25 pence. This effectively boosts the value of pension contributions. This means every time you contribute you will see the additional money from the government added to your pension at the same time.

Higher and Additional Rate Tax Relief

When seeking advice on claiming higher rate tax relief on pension contributions, always opt for professional advice or you might have conflicting information.

To summarise, taxpayers who pay higher or additional rate income tax can claim additional tax relief on their pension contributions through their annual tax return. For example, those paying higher rate tax will physically first see the initial extra 25% added to their pension pot and can then claim the remainder through their annual tax return. The additional tax claimed can then be reinvested into other investment vehicles such as an ISA.

Will Your Employer Increase Their Contributions?

Stay informed about any potential increases or matching schemes your employer offers. Take full advantage of these contributions as it can significantly boost your retirement savings over time.

Understand what their maximum pension contributions are, and if they will increase their pension payment in line with your own additional contributions.

Financial Planning – Create a Retirement Plan

Create a financial plan and understand what you have to do to achieve your retirement income targets.

Part of calculating a financial retirement plan is to help you understand your retirement income needs based on your desired lifestyle in retirement. Consider factors such as housing, healthcare, travel, and leisure activities. Understanding your income requirements will help you set realistic retirement income targets. If you are a younger saver, then you might have to consider other eventualities such as buying a house or paying for school fees.

Cash flow models to visually represent and calculate this projection can be very helpful tools to help you understand what these journeys may look like and what your retirement savings are likely to achieve. By staying proactive in managing your pensions, you can work towards securing the income you desire in retirement and are more likely to create the retirement you are looking for.

Pension Switching – Consider Pension Consolidation

A question we get asked a lot is, how to consolidate pensions. If you have multiple pension policies from different stages of life, or you’re wondering how to find old pensions pension consolidation can have several benefits, such as lower fees and compounded interest, as well as streamlining the administration.

However, it is important to understand what you may be leaving behind, such as guaranteed annuity rates (GAR) or protected/enhanced tax-free cash benefits (PTFC). Having a professional pension advisor assess your policies and create a comparison report can help you understand which to keep and which to consolidate.

After all, if you have a policy that is just as good as other pension policies available to you, why not use that as a vehicle moving forward?

Final Thoughts

By staying proactive in managing regular evaluations, you are more likely to create the retirement you are looking for.

Don’t forget to check out our classroom for the latest news on all things finance-related.

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