As we approach a new year, many of us are reflecting on how to improve our financial health. While retirement might feel like a distant milestone, overlooking your pension planning can have significant consequences for your future financial security.
At Cleveden Park Wealth, we believe that proactive financial planning today can make a substantial difference to your retirement income tomorrow. Here are five common pension pitfalls to avoid and actionable tips to ensure you’re on track for the retirement you deserve.
1. Claim Your Full Pension Tax Relief
Pension tax relief is a hidden gem of retirement planning. For basic-rate taxpayers, a £100 contribution costs just £80. Higher-rate taxpayers enjoy even more generous relief, with £100 costing them as little as £60.
However, not everyone receives the full tax relief automatically. Basic-rate tax relief is typically added to your pension contributions, but if you’re a higher or additional-rate taxpayer, you’ll need to claim the extra relief through self-assessment.
Understanding whether your pension operates under a “net pay arrangement” or “relief at source” system is essential to ensure you’re not leaving valuable relief unclaimed.
2. Don’t Set and Forget Contributions
Relying solely on auto-enrolment minimum contributions can lead to a retirement shortfall for many.
Consider increasing your contributions whenever you receive a pay rise. Better yet, check if your employer offers a matching contribution scheme—this can significantly boost your retirement savings with minimal effort on your part.
3. Maximise Your Allowances
Most individuals can contribute up to £60,000 annually to their pensions and still benefit from tax relief. If you have unused allowances from the past three years, you can take advantage of a carry-forward option to contribute up to £200,000 in the current tax year (provided your earnings support it).
Additionally, consider contributing to a spouse’s or child’s pension if you’ve maximised your own allowances. Contributions of up to £2,880 can attract government top-ups, turning them into £3,600 annually.
4. Track Down Lost Pensions
If you’ve switched jobs over the years, you might have old pensions scattered across different providers. The government’s Pension Tracing Service can help you locate these accounts, ensuring you don’t miss out on money that’s rightfully yours.
Once located, consolidating your pensions might simplify management and reduce fees. However, it’s important to confirm there are no exit penalties or lost benefits before transferring.
5. Shop Around for Annuities
Annuities can offer financial security in retirement, but finding the right deal is crucial.
Rates vary between providers, and accepting the first quote can leave you thousands of pounds worse off. For instance, a 65-year-old with a £100,000 pension could receive up to £7,281 per year with the best annuity deal. Take the time to compare providers and ensure you’re making an informed decision.
How Cleveden Park Wealth Can Help
At Cleveden Park Wealth, we understand that every individual’s financial journey is unique. Our expert advisers are here to guide you through your pension planning, ensuring your strategy aligns with your goals and maximises your retirement income.
Whether it’s helping you claim tax relief, consolidating pensions, or exploring annuity options, we’re here to make your retirement planning as seamless and effective as possible.
Start Planning Today
Avoiding these common pension pitfalls could mean a more comfortable and secure retirement. Contact Cleveden Park Wealth today for personalised advice and a free consultation. Let’s make 2025 the year you take control of your financial future.
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