EACH week The Scotsman gives you a top ten guide to pertinent financial issues.
Each week brings a new final-salary scheme closure, while workers in defined contribution pensions have seen the value of their retirement fund devastated in the downturn.
Gill Hunter, manager of financial planning at Grant Thornton Scotland, sha
res her top tips on boosting your pension.
1 GET A STATE PENSION FORECAST
Establish what pension you will receive from the state. You can find this out by completing a BR19 Pension Forecast form, which can be obtained from the Department of Work & Pensions (0845 300 00 168;
www.dwp.gov.uk).
The DWP will provide confirmation of your estimated state pension payable at your State Pension Age and confirm if you can top up your pension by applying additional National Insurance Contributions, and by how much.
2 ASK FOR A PROJECTION
Many people have worked for more than one employer in their working life, during which time they may have built up an entitlement to a pension. If you don't have any information to hand, it may be worth writing to your ex-employer and establish if you are entitled to any pension benefits for the time you they employed you.
If they provide you with information from the pension provider, you can then request from them an illustration confirming the estimated benefits at the normal retirement age.
3 REVIEW YOUR PENSION FUND
Look at your underlying pension investments. Money held within a pension arrangement can be invested in a variety of different ways, from low-risk funds such as cash or gilts to more speculative and riskier equity-based funds.
If you have more than five years to your intended retirement age, it may be worth taking more of a risk, bringing the potential for higher returns over the longer term.
Or, if you are more wary, you may wish to consider this only for a portion of your pension pot, sticking to the more conservative funds for the bulk of it.
4 RECONSIDER YOUR RETIREMENT AGE
The majority of pension arrangements are flexible enough now that you do not need to fully retire on one specific date. You could decide to phase in your retirement by working full-time to, say, age 63, and thereafter reducing to part-time for a few years, supplementing your income by the payment of a proportion of your pension.
Remember delaying your pension can significantly increase the ultimate income you receive. This is due to having a longer investment period, more contributions being added and annuity rates improving as you get older.
5 MAKE ADDITIONAL CONTRIBUTIONS
You are eligible to pay contributions to a pension plan up to a maximum of your annual earnings. Tax relief is available at 20 per cent for basic rate tax payers and 40 per cent for higher rate tax payers. For a basic-rate tax payer, this means that a contribution of £80 is automatically increased to £100, before any investment performance. For those earning over £150,000, higher-rate relief is only available on contributions up to £30,000.
6 SALARY SACRIFICE
Salary Sacrifice schemes should be considered as a means of making additional contributions. By giving up part of your salary or bonus, savings in tax and national insurance contributions (NIC) could be directed into your pension pot. Your employer may also choose to redirect the NIC saving it makes into your pension fund.
7 NON-WORKER CONTRIBUTIONS
Every individual in the UK is allowed to contribute £3,600 a year to a pension arrangement, regardless of whether or not they are working.
This contribution (you pay £2,880 which thanks to tax relief, becomes £3,600) can be paid by anyone, providing an opportunity to pay pension contributions for non-working spouses, children or grandchildren, while receiving basic-rate tax relief on the contribution. This could culminate in a tidy sum.
8 INDIVIDUAL SAVINGS ACCOUNTS
Although Isas do not attract tax relief, any income taken is completely free of income tax, with encashments which are free from capital gains tax.
They are completely accessible and can be fully or partially cashed in at any time to help out with capital expenditure during retirement.
9 ANNUITY RATES
Shopping around for an annuity, using the open market option, is increasingly becoming essential.
The difference between the best and worst annuity providers can be as much as 30 per cent, and some providers offer enhanced rates for smokers or people with potentially life-threatening medical conditions.
10 GET ADVICE
For all of your pension needs you should seek the advice of an independent financial adviser, who can lead you through the maze of pension legislation and offer guidance.
