Five ways for you to inflate your pension balloon
DID you know your pension is like a balloon? The more air you put in, the bigger it gets.
This week we're giving our five ‘top tips' on how to put a little extra ‘air' into your company or workplace pension now, so that it will grow and give you a grand comfortable lifestyle when you retire.
:: Opt to pay more in: The first and possibly the most popular option is to consider Additional Voluntary Contributions, also known as AVCs. Since 1 October 2012 those of us aged 22 or over (I'm over, myself) and earning more than £10,000 a year have been automatically enrolled into a workplace pension. Well, you don't have to stick with the minimum contribution, you can choose to pay more into your company or workplace pension, based on what you can afford, and if you speak nicely to your employer they are prepared to partly or fully match your extra contributions, then that's basically free money you otherwise would not have had!
:: Consolidate your pensions: did you know that younger workers in the ‘Millennial' generation – those in their 30s and 40s today, are much more likely than previous generations to do a little ‘job-hopping' during their career. In fact, research by PwC shows that 6 jobs over your lifetime is the average! if you've had various jobs so far in your career, it's possible you could have three or four small pensions. However, it means that pension companies don't like you very much, as small pensions are still costly to manage, and they pass those costs on to you – so you could be paying over the odds to have multiple pensions. Your adviser can look at this, and consolidate if it is seen as advantageous to do so, in terms of cost and performance.
:: Defer taking your state pension: when you reach state pension age, that doesn't mean you have to take it straight away. If you have savings, or don't want to give up work, or decide to go part-time, you could well have enough to cover your bills – perhaps your mortgage will be paid off by then – and here's the advantage: currently your state pension will rise by 1 per cent for each period of 9 weeks you defer (i.e. wait before taking it). The current state pension age for both men and women is 66, but it will rise to 67 between 2026 and 2028, and is expected to increase to 68 from 2037. That means anyone born after 6 April 1978 will not be eligible for their state pension until they turn 68.
:: Use savings and investments: More and more people are using savings options as part of their retirement planning these days. If you are between 18 and 39 now, you can open a Lifetime Isa to save towards your retirement (although they can also be used to save towards your first home). The great thing about this Isa is that the government chips in – you can save up to £4,000 a year and they add 25 per cent of that, so that they top it up by £1,000.
:: Equity Release: this isn't one I would necessarily recommend, it can be high risk and there are disadvantages to it, but everybody seems to be talking about it these days so I'll give it a brief mention anyway. You really need to understand the costs and the risks involved, and once we tell you about those, you may well prefer the other alternative, which is to downsize to a smaller property and thus free up much of the value of your present home that way.
Is your balloon looking a bit saggy at the moment? Perhaps it needs a little extra air? Give us a call and let us blow it up for you!
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com