A pension warning has been issued over the pitfalls costing UK households. UK households are warned of “pension pitfalls” that could cost them thousands of pounds “worse off” in retirement as we head beyond Christmas and into 2025.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warned: “Taking a set and forget approach can mean your planning falls foul of various pitfalls that can have a big impact on what you end up with. Taking some simple actions now can make a huge difference that your future self will thank you for.”
Speaking ahead of the New Year, Ms Morrissey urged households to track down pensions. Ms Morrissey said: “It’s easy to lose track of pensions from old employers, but not tracking them down can leave you thousands of pounds worse off.”
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But this wasn’t the only pitfall. By keeping track and making retirement planning a priority, Britons can avoid costly mistakes that could impact their future financial security.
Remember to claim your pension tax relief
Pension tax relief is a hidden hero of retirement that can see a £100 contribution only cost £80 for a basic rate taxpayer. Higher and additional rate taxpayers get an even better deal with that £100 pension contribution only costing them £60 and £55 respectively. However, in some cases, you won’t receive your full amount of tax relief automatically.
Basic rate tax relief will usually be added to your contribution automatically and you won’t need to claim extra relief if your pension is set up under salary sacrifice either. However, if you are a higher or additional rate taxpayer you may need to claim the extra 20% or 25% tax relief through self-assessment.
Don’t set and forget contributions
It can be easy to set your contributions at the auto-enrolment minimum level and forget to update them. For some people this will be enough to give them what they need in retirement, but it won’t be for others and if they don’t engage, they could be in for a nasty shock.
With only 38% of households on track for a moderate retirement, according to the latest data from HL’s Savings and Resilience Barometer, it’s an area that more of us should be attending to.
Make the most of your allowances
Many of us can put up to £60,000 per year into our pensions and still benefit from tax relief. For a higher rate taxpayer that means your £60,000 contribution in effect only costs you £36,000 so it is hugely tax efficient. If you have any unused allowances from the past three years you can also make use of these through a process called carry forward, which means you may be able to make a contribution of up to £200,000 to your SIPP this tax year (as long as you earn at least this amount).
Find lost pensions
It’s easy to lose track of pensions from old employers, but not tracking them down can leave you thousands of pounds worse off. If you think a pension has gone astray then contact the government’s Pension Tracing Service. You will need either the name of your employer or pension provider and they will give you contact details so you can get in touch.
Search for the best annuity
Annuities are offering great value right now, but you need to make sure that you search the market to get the best deal for you. Quotes vary between providers and taking the first one on offer could leave you thousands of pounds worse off over the course of your retirement.