10 tips for taking control of your pension

The new year is a chance to refresh your savings plans and improve your retirement prospects – starting with your pension. Here, Senior Adviser Richard Rochford provides his top 10 tips for getting your pension in shape – including the allowances to take advantage of before 5 April.

Retirement is changing. Gone are the days when it meant settling into your armchair for the next 20 years – now, we are faced with rising longevity and the prospect of a 100-year life. However, such challenges can be managed with foresight and careful planning, and the start of the year is the perfect time to ensure that your financial strategy is moving in the right direction.

Here are 10 tips to get you started:

  1. Maximise the current tax breaks

The government offers generous tax relief to pension savers – 20% for every UK resident under 75, and up to 40% and 45% for higher earners. So, if you are still some years away from retirement, you should think about boosting your pension savings now, so that you can benefit from current rates of tax relief and enjoy a higher income when you retire.

  1. Look at unused allowances

The maximum you can contribute to all your defined contribution pensions each year while still receiving tax relief is called the ‘annual allowance’. If you have used up all of your 2019/20 pension allowance, did you know that you can use any unused allowance from the previous three years and still benefit from tax relief at your highest marginal rate (with anything over the basic rate being reclaimed via your annual tax return)?

  1. Review your existing pensions

Your existing workplace pension arrangements are a logical place to start when streamlining your retirement plans. During your lifetime, you will likely accumulate several different workplace pensions, and it’s not always easy to keep track of them all – research suggests there are around 1.6 million unclaimed pots worth £19.4 billion – the equivalent of nearly £13,000 per pot!1 If you are considering transferring or consolidating your pensions, it’s very important to seek advice so that you are fully aware of any benefits you are giving up versus those you will gain.

  1. Calculate your State Pension

It’s very hard to plan your retirement without a full view of your State Pension. It’s therefore a good idea to check how much State Pension you could get and when you could get it, to help you budget for retirement and understand how much other income you might need to free up. Retirees can defer their State Pension and get a higher income when they claim it later in retirement – you should always seek appropriate advice as this could affect other areas of financial planning and some other welfare benefits. You can check your State Pension online at https://www.gov.uk/state-pension-statement.

  1. Save your personal allowance

Pension contributions can help individuals bring their income below certain tax thresholds, but it can also provide other tax benefits, for example, getting your personal allowance back. Higher rate taxpayers could also claim money back in tax relief on the contribution via their self-assessment tax return, which could bring their income below the additional rate tax band – which starts at £150,000.

  1. Divert your salary

Salary sacrifice is another tax-efficient way of saving into a pension. You take lower pay and the difference is paid into your workplace pension by your employer. Both you and your employer pay lower National Insurance contributions (NICs) and, if your employer agrees to it, they will even pay the equivalent they save on NICs into your pension as well.2 Furthermore, your taxable income is reduced.

  1. Think about the children

Many people don’t know that children can also have a pension fund as soon as they are born – and setting one up can bring significant tax advantages, as well as helping you build a nest egg for their future. According to HMRC, more than 10,000 children already have pension plans in place.3 Even if your child is a non-taxpayer, they will still get basic-rate tax relief on contributions. That means a maximum of £2,880 a year is automatically grossed up to take account of tax at 25%, giving an annual investment of £3,600.

  1. Beware of cashing in

Being able to take money without any restrictions means that there is a danger people exhaust their funds or find themselves unwittingly pushed into higher rate tax bands – many people are unaware of the tax liability that could be triggered by cashing in a pension. While it might be tempting to take your pension in one lump sum, it may be more tax-efficient to phase withdrawals over several tax years to avoid higher rates of Income Tax.

  1. Pensions – estate planning

A defined contribution pension can pass entirely tax-free to any beneficiary as long as the pension holder’s death is before the age of 75, and can even be cascaded down several generations. Even if death occurs after 75, beneficiaries do not pay Inheritance Tax – only Income Tax at their marginal rate when the money is withdrawn from the pension. Your adviser can help ensure that as much as possible of your pension plan is preserved for the individuals you would like to benefit in the future, while taking your own needs into account.

  1. Keep one eye on the lifetime allowance

The lifetime allowance will rise to £1,055,000 on 5 April – if the cumulative value of the payouts from your pension pots exceed this over a lifetime, there will be a 55% tax on the excess. If this is a concern, there are alternative ways of saving for retirement including a child’s pension, ISAs or advanced investment schemes. Before considering an investment in these complex tax wrappers, it’s recommended that you discuss your options with your financial adviser.

Keeping your goal in focus

Saving enough for a comfortable retirement has undoubtedly become more of a challenge – however, with careful pensions planning, you can get firmly on track to reach these goals, while being flexible if your situation changes. An experienced financial adviser can help you create and maintain the right pension strategy, while offering the providing guidance, support and stability required to help you stay on course.

If you have a question about receiving financial advice, or would like more information about my services, please contact me on 01444 244551 or via email at richard.rochford@sjpp.co.uk.


1 The Pensions Policy Institute, October 2018
2 St. James’s Place, Take Control of Your Retirement Plans, January 2018
3 HMRC, April 2019

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Author: Richard Rochford
Author: Richard RochfordSenior Adviser