Give your pension a health check

published 11 January 2019

Getting on top of your finances is one of the most common resolutions for the new year. But that doesn't have to mean taking drastic action: when it comes to pensions, at least, there are some simple measures that can increase the value of your retirement benefits substantially. None should take more than a few minutes to organise.

Boost your state pension

The state pension is a solid base from which to build your retirement income, but you won't get the full amount if you haven't made sufficient national insurance contributions. You need 35 years' worth in total, so check your national insurance record at Gov.uk to find out where you stand. If you're likely to fall short, you can make voluntary class-3 national insurance contributions, currently charged at £14.65 a week, to fill the gap.

Redirect new-year savings

Have you given up smoking, cut back on drinking, or decided to stop making costly trips to the coffee shop in 2019? If so, make your new year's resolutions really pay by redirecting the money you're saving into your pension. For example, quitting a 20-a-day smoking habit will save you nearly £300 a month, or £3,600 a year. Invest that cash each month in a pension fund delivering an average annual return of 4.5%, and you will have more than £19,800 after five years, some £43,500 after ten years, and nearly £147,000 in a quarter of a century.

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Check what youremployer offers

From April, the minimum amount that your employer may contribute on your behalf to your workplace pension scheme, assuming you're a member, increases from 2% to 3% of your salary. But many employers are much more generous, paying a higher minimum contribution than required and offering even more if you're prepared to make higher contributions too. Be sure you're not missing out on free money from your employer.

Switch to a better individual plan

If you have personal pension plans as well as corporate ones, now is the time to check they are not underperforming.If you are paying uncompetitive charges or suffering from poor investment performance, think about moving your money to a better plan, taking independent financial advice if need be. Equally, if you have several plans, consider switching all your savings into the best one, or moving all of them to a new provider. The cumulative effect of high charges and poor investment performance is enormous, so make this step a priority.

Max out your allowances

The annual allowance limits your private pension contributions to £40,000 a year, or less if you're a high earner. But you can use the carry-forward rules to boost that cap by mopping up unused allowance from any of the last three tax years. You can also contribute up to £3,600 a year to a pension on behalf of a non-earning partner. Meanwhile, lifetime Isas offer under-40s an additional way of saving for retirement. In each case, government tax relief or bonuses will boost the value of your contributions.

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.