3 simple ways to increase your pension pot to fund your dream retirement

By HarperLees

Whether you’re planning to travel the world, spend time with friends and family, or simply enjoy not having to get up early and commute to work, you’ll likely be looking forward to your retirement.

Indeed, a survey carried out by Aviva revealed that travel was the most popular bucket list option for people close to retirement. 41% of respondents said they wanted to explore the world once they’d stopped working.

Of course, if you want to see the magnificent sights of Machu Pichu or the stunning scenery of New Zealand, you need to know that you have enough money put aside to fund the trip. Similarly, you’ll need to ensure you’ve saved enough for anything else you have planned for your retirement.

With rising interest rates and the cost of living crisis making it harder for people to maintain their lifestyle during retirement, it’s been a challenging few years for many.

Indeed, a separate study by Aviva found that 71% of Brits are worried about not having enough money to do the things they want to do when they retire.

You may be keen to increase your pension pot to help fund your dream retirement. So, read on to discover three simple ways that you could do exactly that.

1. Maximise your State Pension

Given that the State Pension is a guaranteed sum that rises in line with economic circumstances over time, it could be a very useful bedrock to your income.

The amount of State Pension you can claim will depend on how many “qualifying years” you have. You normally accrue a “qualifying year” by making a certain level of National Insurance contributions (NICs) or by claiming certain benefits. This could have been for being a registered foster carer or for caring for one or more sick people.

To receive any State Pension, you must have at least 10 qualifying years of NICs. To claim the full State Pension – £203.85 a week in the 2023/24 tax year – you’ll need 35 qualifying years.

You might automatically think that you’ll be in line to receive the full State Pension. However, although you may have worked all your life, there could be gaps in your National Insurance (NI) record that might prevent you from receiving the full amount.

Fortunately, you can plug gaps in your record by making voluntary NICs. You can usually go back six years to do this. That said, until April 2025, you’ll be able to do this if you have gaps between 2006 and 2016.

Additionally, if you have been unable to pay NICs because you were ill or you were caring for someone, you may be able to claim additional NI credits.

For example, if you are registered for Child Benefit for a child under 12, caring for one or more sick people or people with disabilities for at least 20 hours a week, or a registered foster carer, you may be able to claim credits.

By maximising your State Pension and claiming any available NI credits, you could give your retirement funds a real lift.

2. Increase your monthly pension contributions

One of the most straightforward and potentially lucrative ways of boosting your pension pot is by increasing your monthly pension contributions.

If you’re employed, your employer will usually make regular payments into your pension pot on your behalf. By law, you and your employer will have to pay a minimum amount into your pension scheme. This is set at 8% of your earnings.

Your employer must pay at least 3% of this, and your contribution will be the remaining 5% (including tax relief).

While not obligated to, some employers may increase their contributions if you increase the monthly amount you put aside as well. This is typically a direct match, meaning if you put aside an extra 1%, they may do the same.

Crucially, your provider will then invest your pension savings, giving them the opportunity to grow in the markets.

So, if you are considering increasing the amount of money paid into your pension each month, it could make sense to start as soon as possible. That way, your savings will have more time to grow and capitalise on the benefits of compounding.

Put simply, the longer that your money remains invested, the more time it has to potentially work in your favour.

If you receive additional funds, such as a work bonus, it could also be worthwhile making a one-off payment to your pension as you could benefit from tax relief on this contribution.

This neatly brings us to…

3. Make the most of tax relief

One key advantage of saving into a pension is tax efficiency. Your pension savings will be able to generate interest and investment returns entirely free from Income Tax and Capital Gains Tax (CGT) while held in your fund.

You’ll also receive tax relief on your contributions, essentially seeing the Income Tax you would have paid on your money added to your pension savings instead.

You can receive tax relief on your pension contributions up to the Annual Allowance, a maximum threshold for tax-relievable savings each tax year. In 2023/24, this stands at £60,000. This figure could be lower if you are a high earner or you have already started flexibly drawing income from your pension fund.

You can contribute more than this into your pension, but there will be a tax charge on any funds you pay in that exceed the Annual Allowance.

You’ll receive basic-rate tax relief automatically on your contributions. This means that topping up your pension by £100 would only cost you £80, as the government would pay the additional £20.

Crucially, higher- and additional-rate taxpayers can claim extra tax relief through a self-assessment tax return. This means a £100 contribution will only cost £60 or £55 respectively.

With pension tax relief an important part of pension saving, it’s vital to claim the full amount you are eligible for. Despite this, a report by Standard Life has revealed that £1.3 billion of tax relief has been left unclaimed.

So, if you’re a higher- or additional-rate taxpayer, make sure to claim the additional tax relief you’re entitled to. Failing to do so may mean you miss out on boosting your wealth even further.

Speak with an experienced financial planner

A smart financial plan can make a significant difference in planning for your retirement and having the funds you need to do everything you want to do. This is when speaking with a professional financial planner can help.

We can help you identify how much you’ll need to achieve your retirement dreams, devise a financial plan, and act as a sounding board for all your decisions. Please email info@harperlees.co.uk or call 01277 350560.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.