How to maximise your pension ⬆️

In the first Pension Series post I’ve talked about sorting your workplace pension pots. If you haven’t done this or missed the post, you can read it here. 

Now that your pension is hopefully all in one place and easily accessible, we can look at how to maximise it. This will be one of the most impactful things you can do for building wealth for your retirement.

Maximise the employer pension match 🏭

Most of us in the UK have an auto enrolment work place pension and the employer has to put in a minimum contribution of 3% of your earnings.

However, some companies generously offer to match your contribution up to a certain level or even add extra if you’ve worked there for a certain number of years.

It is basically free money and the general advice is to maximise your contribution if the employer offers a match. So if your company offers to match up to 6%, then you should try to increase your contribution to 6% to get the maximum match.

It can make a big difference over the years in building your retirement pot.

You can find out if this is offered via your HR department or benefits section of your work portal. If your company doesn’t offer it, fear not, there are still other ways to boost your pension.

Increase your own contributions ☝️

If you feel like you’re behind (who isn’t? 🫠) or simply want to build your pot faster, you can always increase your pension contribution. The current minimum employee contribution set by the government is 4%, so if you can afford to, you could increase it.

Using any pay rises or bonuses can be a great way to get tax benefits and increase your pension pot as well. Often bonuses can be taxed heavily, so putting that money into your pension instead can mean keeping more of your hard earned money.

Choose the right pension fund 🍯

This one is extremely important as it can mean a huge difference in your final pension pot amount and what you can retire on. In order to make the right choice, you need to understand these things about your pension:

• what your pension is invested in;

• how this fund is performing;

• the make up of the fund (and the risk level);

• fees associated with that fund.

I have recently found out that one of my pensions was invested in a default fund originally set up by my employer, which was returning only around 4-5% - I was shocked how low this was!

The fund was surprisingly very cautious in terms of risk with only 40% invested in global stocks and the rest in bonds (less stocks means less risk).

It makes no sense for someone my age to be on a low risk portfolio this early and not to have exposure to the best performing funds on the market.

Since I switched to a different fund that closer matched my risk appetite, my pension investment return has increased by over 8%. This simple change will be worth tens of thousands of pounds over 20-30 years time.

How to switch 🔁

If you are not happy with your fund and would like to make a change, there is a very handy sheet with most pension providers and some of the best available funds below.

Different funds will also have certain management fees, so worth checking this to make sure they are not significantly higher. However, slightly higher fees can also be easily negated by far greater investment performance of the fund over the years.

Get the auto enrolment pension provider cheat sheet from Financial Interest here.

Check your fund performance 📈

To ensure your pension investment is performing up to your expectations, it’s good to check it regularly. You may also want to switch to a different fund (with a higher proportion of bonds and cash) later down the line, especially as you get closer to the retirement and want to de-risk your portfolio.

My weekly recommendation

One thing that caught my eye last week was Nischa’s video ‘5 Things to STOP doing to Get RICH in 2024’. She talks about the growth mindset vs fixed mindset and how that can impact the results of anything including financial success.

According to an article from Harvard Business School:

This also applies to money - being able to earn some extra income, starting your own business or even just saving more. It all requires growth mindset.

Check out her video on this point and some other helpful tips.

Hope you enjoyed this week’s newsletter!

I want to hear from you - if these tips and information has helped to make a positive change, please let me know.

Until next time ✌️

Lina at Money Blues