Five ways to get your pension savings on track this year

Pensions aren’t always at the top of our priorities after a busy Christmas, but these five quick and simple checks can get your pots in shape for the coming year.

1. See if you can save more

It’s easy to simply say people should pay in more, but if you can afford to put a little extra towards your retirement, pensions offer great tax perks in exchange for long term saving. Increasing what you pay in by just a small amount could make a big difference to the value of your plan over time.

An extra £100 per month for 20 years for a basic-rate taxpayer could add nearly £43,000 to your pot in today’s money. Over 30 years, it’s closer to £88,000.

Read about how much you might need in retirement.

2. Claim all your tax relief

Make sure you’re not missing out on all the tax relief you’re entitled to. In a ‘relief at source’ scheme like the AJ Bell SIPP, we will reclaim basic rate tax relief (20%) from HMRC automatically on what you pay in.

For example, if you pay in £800, we will reclaim £200 from the tax man and add this to your SIPP when we receive it. That means an extra £1,000 overall in your SIPP.

But if you pay tax on your earnings of 40% or even 45%, you can claim even more relief. Although this doesn’t go into your SIPP, it lowers your tax bill for the year and means that £1,000 could cost you as little as £550 from your take home pay. You can reclaim extra relief by contacting HMRC or via your self-assessment tax return if you complete one. You can also claim for any previous tax years you might’ve missed.

Read more about the maximum limits and allowances.

3. Make sure you invest any extra cash you pay in

If you’ve managed to pay in more, don’t forget to actually get it invested. Lots of providers, including AJ Bell, offer a regular investment service. This gets your cash automatically invested at the same time each month and takes away some of the guesswork about exactly when to invest. As the old saying goes, it is time in the market, not timing the market that counts over the long term.

You can get started with regular investing in your SIPP from just £25 per month (per investment) and you’ll pay a lower dealing charge too, meaning more of your cash goes into the investments you want.

4. Review your investments

You’ve already built the investment portfolio powering your SIPP, but it’s a good idea to check in and review things, at least once a year. It can help to split this into two steps.

First, check the investment case for what you currently hold. Ask yourself if you’re happy holding it today. Investing requires plenty of patience, but if after reading a company or fund report you spot some red flags, it might be time to reconsider that holding.

On the other side of the coin – just because the value of something isn’t as high as you expected or hoped, it might be due to prevailing market conditions rather than the individual fund or company itself.

Second, you should consider rebalancing your portfolio. This is where you buy and sell holding to get your portfolio back to your original asset allocation plan.

One part of your pension portfolio might’ve performed well since you last checked in, and another section could’ve had a bad patch, meaning you’re out of kilter with versus your original plan. Rebalancing involves selling a proportion of the outperforming holding(s) and using the proceeds to buy into the other asset(s) to get back to your original starting point. Learn more about asset allocation.

5. Combine your pension pots

Even if you already know where your old pensions are, combining them in one pot can put you in the driving seat to make better decisions about your future.

This could be whether you need to pay in more money now or simply by reducing your costs.

Lots of people also like to combine in the run up to their retirement. For other people, consolidating pots can help you choose the right-priced plan and often pay far less in charges over time.

Different pension companies charge different amounts for managing and investing pensions and the impact of reducing your pension charges can be significant over the long term.

AJ Bell figures show that someone consolidating three pensions with charges of 1.5% to 0.75% could boost their pension pot by over £7,000 over 10 years or £20,000 over 20 years if they were to switch to a single, lower cost account.