Huge pension warning as 12.5million won’t have enough for retirement – six ways to easily and cheaply boost your pot
MILLIONS of households won’t have enough money put away for retirement.
Some 12.5million pension savers aren’t putting enough money into their pots, according to Department of Work and Pensions (DWP) research.
Gary Smith, director of financial planning at wealth management firm Evelyn Partners said: “Huge numbers still aren’t saving enough towards their retirement.
“It particularly shows that middle and higher earners with defined contribution pensions are likely on retirement to see the biggest shortfall when compared to the income they were receiving in work.
“It does suggest that minimum contribution levels, within workplace pension arrangements, might have to increase further in order to make sure people are saving adequate amounts, and won’t be caught out by a living standards shock when they retire.”
The figures affect workers on defined benefit (DB) and defined contribution (CD) pension schemes.
A DB pension is where what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year on retiring – but they’re not usually offered by employers anymore.
Most have a DC pension, which is where you are automatically enrolled in your workplace pension scheme when you join.
That means that you save money each month – what you have to retire on is based on how much you’ve put away and how well your investments have done.
But as many aren’t saving enough into their workplace and personal pensions, state pension payments will make up a larger proportion of a lower earner’s target income upon retirement, according to the DWP.
Workers need to make 35 years’ worth of National Insurance Contributions (NICs) to get the full new state pension amount which is currently £185.15 per week – but many are also missing out here too.
Here are six steps you can take to boost your retirement fund and ensure that you’re not missing out when you stop working.
1. Maximise employer contributions
If you’re paying into a company pension, check you’re getting the most out of your employer.
Under the automatic enrolment rules, if you choose to keep paying into your workplace pension, you and your employer should together contribute a minimum of 8% of your monthly salary when you earn more than £10,000 a year.
But many companies are willing to match higher contributions if you’re willing to pay in more, so check your scheme’s rules.
2. Track down lost pension pots
With the average worker having around 11 jobs over the course of their career, many end up with multiple small pension pots.
It’s estimated that some 2.8million pension pots are lost and worth an average of £9,470, according to the Pensions Policy Institute.
In total these lost pots contain a whopping £26billion in untapped savings.
Find pensions from jobs you left decades ago by visiting the government website or call the Pension Tracing Service on 0800 731 0193.
3. Delay taking an income from your personal or workplace pension
If you have a defined contribution pension it allows more time for you to contribute to your pension pot and more time for it to potentially grow, so you might have built up more savings by the time you retire.
Rates for guaranteed income products (annuities) also tend to increase as you grow older.
So if you’re considering using your pension pot to buy a guaranteed income, delaying might mean you’ll get a higher income, as long as overall annuity rates aren’t falling.
If you’re thinking of taking a flexible retirement income from any pension pots you have, starting to take the money can give you a better chance of making it last as long as you need to. And it might allow you to take a higher income at the start.
If you’re thinking about delaying taking your pension, speak to your provider to understand your options. And to check whether there’ll be any charges for changing your retirement date.
4. Make extra Nation Insurance contributions
To qualify for the new state pension you need at least 10 years’ worth of national insurance contributions, and to get the maximum you need at least 35 National Insurance years.
But if you don’t have enough contributions to get the full state pension or any at all, you can choose to buy extra credits.
You can do this before you reach the state pension age and when you reach it.
You can claim extra years by buying Class 3 National Insurance credits. They currently cost £15.85 a week, or £824.20 for the whole year.
For those with gaps in their record on or after April 6, 2016, you can add 1/35 to your state pension for life.
This may not sound like a lot, but it would boost your state pension by over £200 each year.
So it would take less than four years of getting more from the state pension to recoup the money you’d have to pay out for contributions in the first place.
And you would of course get this boosted state pension for the rest of your life.
You can find out more about making voluntary National Insurance contributions on the Government’s website.
Martin Lewis has previously revealed how he helped boost a listeners pension pot by £2,548 a year by making voluntary National Insurance contributions.
5. Apply for National Insurance credits
National Insurance credits are a way of maintaining your National Insurance record if you are not making contributions through work.
They help you to build up qualifying years over time, which you can use to make you eligible for basic state pension and other benefits.
But you have to meet certain criteria to be eligible for the credits.
You can get them if the following applies:
- You’re on Jobseeker’s Allowance and not in education or working 16 hours or more a week or you’re unemployed and looking for work, but not on Jobseeker’s Allowance
- You’re ill, disabled or on sick pay
- You’re on maternity, paternity or adoption pay
- You’re a parent who has registered for child benefit for a kid under 12, you want to transfer credits from a spouse or you’re a foster carer
- You’re a carer on carer’s allowance, on Income Support and providing regular and substantial care or you’re caring for one or more sick or disabled person for at least 20 hours a week
- You’re a family member over 16 but under State Pension age and you’re caring for a child under 12
- You’re on working tax credit or universal credit
- You’re on a training course or jury service
- Your partner is in the armed forces
- You’ve been wrongly imprisoned
But other eligibility rules apply too. You can find out the full list of who’s eligible to claim credits on the Government’s website.
You can either apply online or will have to contact your local Job Centre to receive the credits.
6. Delay taking your state pension
The current state pension age is 66 but this is set to rise to 67 and then 68.
But just because you’re eligible to claim it doesn’t mean you have to.
Your state pension increases every week you defer, as long as you defer for at least nine weeks.
It goes up by 1% for every nine weeks you defer.
This works out as just under 5.8% for every 52 weeks.
So under the current state pension weekly rate, you’d get £10.70 extra a week if you deferred your pension for 52 weeks – or £556.40 a year.