The end of 2021 is almost here and as we head into the new year many people will be looking to spring clean their finances to make sure the next 12 months are more prosperous than the last, especially for their pension pots.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, says that reviewing your later life savings plan is a must for starting 2022 on the right financial footing.
Even the smallest of changes can have a massive impact in the long-term, such as making a slight increase in pension contributions which can really add up over time while tracking down a lost pension can potentially boost your retirement savings by thousands of pounds.
Helen explained: “Planning ahead can also save you and your loved ones from nasty surprises such as unexpected tax charges or even death benefits going to an ex-spouse rather than a current partner. Taking a bit of time to update your pension planning now can make a big difference in the long-term.”
Top retirement resolutions for 2022 every saver should adopt
Helen shares her top tips for reviewing your finances and boosting your retirement pot over the next year.
Increase your contributions
It can be tempting to set and forget pension contributions, but making small increases to contributions, for example when you get a pay increase or change jobs can really add up over time.
You may also find that if you increase your contributions then your employer will too, so it is worth checking this with them.
There are loads of helpful online tools such as pension calculators that can show you the potential impact of putting in a bit extra over the long term.
Track down lost pensions
We are expected to have several jobs over the course of our working lives, and you could end up with a pension at each one of them.
Over time you can lose track of these and this means you won’t get the full pension you are entitled to.
A recent Freedom of Information (FOI) request said the service had received over 200,000 calls from people trying to track down a lost pension over the past four years.
Look into consolidating pensions
Once you’ve tracked down your lost pensions it might be a good idea to consolidate them.
Having one or two larger pots is easier to keep track of than several smaller ones and will make your retirement planning easier. However, you need to make sure that in doing so you aren’t giving up valuable benefits such as guaranteed annuity rates which can boost your income or leaving yourself open to paying large exit fees – take advice if necessary.
Make the most of your tax allowances
You can contribute up to £40,000 per year to your pension and still claim tax relief. If you haven’t used up all your allowances in the last three tax years you can further boost your contribution through a process called carry forward.
While many people will not get close to contributing £40,000 to their pension a year, it is a handy tip people with a lumpy income like the self-employed or someone who has recently received an inheritance might be able to make use of.
Update your expression of wish forms
You will have filled out an expression of wish form to say who you would like to receive your death benefits when you started your pension.
However, this may have been a long time ago and in the meantime, you may have divorced, separated or started a new relationship and so the person named on the forms may not be the person you want to benefit.
While administrators/trustees may have discretion in some cases to award death benefits to someone other than who is named on the form, sometimes they don’t. It’s best to make sure these are updated regularly to make sure your wishes are considered should the worst happen.
Check your state pension entitlement
Currently you need 10 years of National Insurance contributions to qualify for a State Pension with 35 years needed for the full amount.
If you have gaps you need to fill you can buy extra National Insurance contributions to make up the extra years. Each extra year of voluntary class 3 National Insurance contributions costs around £800.
You can find out more and how to pay here.
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If you are entitled to claim Child Benefit but don’t because you are affected by the High-Income Child Benefit tax charge, then you are missing out on National Insurance contributions that could go towards your State Pension.
Similarly, if the Child Benefit application is in your partner’s name and they are working while you are at home looking after the children then they can transfer the National Insurance credit to you.
Find out more on the GOV.UK website here.
Grandparents and other family members who are under State Pension age and taking care of children aged 12 or below so their parents can return to work may also qualify for National Insurance credits through Specified Adult Childcare Credits – find out more here.
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