Published On: Sat, Jun 17th, 2017

REVEALED: 5 simple tricks to increase your pension and BEAT threatened cuts after election



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There are a number of ways to boost retirement income


Britain’s saving and retirement rules can be complex and difficult to understand, but taking the time to review savings and projected income pays off.

The government’s free and impartial guidance service, Pension Wise can help people understand their options.

And a few simple steps can lift income by thousands of pounds.

1.Don’t miss out on free cash

Around a quarter of older people are missing out on the chance to boost their retirement savings by hundreds of pounds a year by opting out of work-based savings schemes, research has showed.

Savers can boost their pension pot by average £433 a year after tax relief and employer contributions are taken into account, according to NOW:Pensions.

And workers who are likely to be reaching the peak of their career could be missing out on much more.

NOW: Pensions policy director Adrian Boulding said: “Older people may think that it makes sense not to have another pension scheme – perhaps they think they’ve saved enough, or perhaps they feel they can’t afford it – people who do this are effectively throwing money away by missing out on their employer’s contribution to their pension, and the government’s contribution in the form of tax relief.”

2. Minimise tax

Savers accessing their pensions through ‘freedom’ reforms are paying more tax than the Government expected, raising concerns many have been caught out by rules.

Large unnecessary withdrawals can push people into higher income tax bands, meaning that it could be better to split withdrawals over a number of years where possible.

Fidelity International’s head of pensions policy, Richard Parkin, said: “Where people do need to access their pensions they should consider doing that in a way that minimises tax by spreading withdrawals.

“So think carefully before withdrawing monies and if in doubt, seek expert help as the decisions you take here cannot be undone.”

For example, a £30,000 earner cashing in a £30,000 pot would end up paying higher rate tax on £9,500 of that money giving a total tax bill of £6,400.

But if they took half the pot last year and half this year they would only pay tax at the basic rate and save themselves £1,900.

3. Top up your state pension

Over-55s should can boost their state pension payout by hundreds of pounds a year using a generous government scheme.

Anyone who won’t receive the full state pension, which pays £159.55 a week in the current tax-year, should be looking to take advantage, according to ex-minister Steve Webb, who is now director of policy at Royal London.

It is estimated about half a million people who contracted out of national insurance contributions (NIC) in their career – and therefore won’t qualify for the full payout could benefit.

Paying voluntary ‘Class 3’ NICs allows people in this situation to top-up their state pension at a heavily subsidised rates.

For example, an upfront payment of around £733 could mean an extra £4,600 on average during retirement or £230 a year, according to Royal London.

4. Reclaim tax 

People who access their pensions for the first time to take lump-sum payments are being caught out by HMRC rules and incurring shock tax bills.

Even though most over-55s in this situation are making a one-off withdrawal, the taxman assumes the saver will continue to take out monthly payments of the same sum.

As a result, emergency tax is charged on the one withdrawal at a rate based on an annual sum around 12 times higher.

For example, someone taking out a typical £10,000 will be charged as though they are set to take £120,000 in a year, even though that is unlikely to be the case.

It means a tax bill of £3,099.46, compared to nothing on £10,000 of income over a year, according to calculations by pension provider AJ Bell.

It’s thought hundreds of thousands of people could be owed money back and savers have now been urged to check if they overpaid and turn to HMRC for a refund if the pension pot was used up, or their pension provider if there is still money left.

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Topping up your state pension can mean thousands of pounds more in retirement

5. Inflation proof your savings

Soaring inflation, which hit a four-year high last month, is a problem for anyone on fixed incomes – typically pensioners.

The state pension rises in line with inflation, but it’s important that retirees plan to stop the rising cost of living in effect reducing their from other forms of income.

Planning ahead and investing is one way to do this, with professional advice one way to help people prepare.

Kate Smith, head of pensions at Aegon said: “Many of those with defined benefit pensions will have some built in pension increases which protects them to some extent from rising costs.

“However, in the coming years people will increasingly be accessing defined contribution pensions under the pension freedoms.

“While this provides a great deal of flexibility, people will need to think carefully about how they invest and access their savings to protect against inflation.

“Everyone is different and people’s decisions will depend on their financial and personal circumstances.

“Ideally, everyone should get advice to help them get the most out of their retirement income.”



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