How to boost your pension savings and catch up for retirement

Up to 15 million people in the UK may not be saving enough for retirement, according to recent findings from the Pension Commission.

The Commission’s report led to alarming headlines across the media about the pensions savings crisis and its effect on the country.

So how much money will you need when you retire – and how can you go about making up a shortfall if you haven’t got enough at the moment?

How much money do I need in retirement?

A lot of people don’t realise how much income they may actually need once they stop working.

The independent Retirement Living Standards guide estimates that a single person now needs around £13,900 a year as a minimum, around £32,700 a year for a “moderate” retirement lifestyle, and approximately £45,400 a year for a “comfortable” retirement.

For couples, those figures rise to £22,500, £45,400 and £62,700 respectively:

Why are people not saving enough in their pensions?

There are several reasons why people in the UK are not saving enough to enjoy the retirement they want.

Delaying pension saving

Many younger workers understandably prioritise more immediate financial goals e.g. buying a house, car or going on holiday, because retirement can feel like something that’s years away.

Career breaks

Periods out of work due to caring responsibilities, illness, self-employment or career changes can all reduce pension contributions.

These gaps can mean fewer years of pension contributions and less time for investments to grow, particularly earlier in someone’s career.

The gender pension gap

Many women have career breaks for childcare or looking after parents, work part time or earn less than men, which can affect their pension contributions.

Women aged 55 to 59 have median private pension wealth of around £81,000, compared with £156,000 for men of the same age, showing how large the gap can become over time.

Lack of pension understanding

Pensions can feel complicated, especially for people who have built up several workplace pensions over their career. As a result, many people lose track of older pensions or simply avoid reviewing them altogether.

Many individuals underestimate how much they will need in retirement or are unaware of the tax advantages available when contributing to a pension.

Cost of living pressures

Over recent years, rising household bills, mortgage costs and inflation have left many people focusing on short-term financial priorities.

When household budgets are stretched, pension saving is often reduced because people naturally prioritise money they can access immediately.

How to make up for lost pension savings

If you are amongst the 15 million people who haven’t saved enough for retirement, don’t panic. There are several ways in which you can help make up the shortfall.

Increase pension contributions gradually

Even increasing pension contributions by 1% or 2% can still have a noticeable impact over the long term.

Many people choose to increase contributions after a pay rise, allowing them to save more without noticing a difference in their income.

Some people can also choose to pay bonuses or extra savings into pensions to help boost retirement savings faster.

Make the most of workplace pension schemes

Employers are required to automatically enrol qualifying employees into a workplace pension. Employers also contribute into the pension, helping boost employees’ retirement savings.

Some employers also offer contribution matching schemes, where they will increase their own contributions if employees contribute more themselves.

Consider salary sacrifice arrangements

Some workplaces offer salary sacrifice pension schemes. Under salary sacrifice, employees agree to exchange part of their salary for increased pension contributions.

This can reduce both Income Tax and National Insurance contributions, which can make pension contributions more tax-efficient for both employees and employers.

In some cases, employers may also pass on part of their National Insurance savings into the employee’s pension.

Take advantage of Pension Tax Relief

Most basic-rate taxpayers currently receive 20% tax relief on pension contributions. In practical terms, for every £80 contributed into a pension, the Government adds £20, meaning £100 is invested overall.

Higher-rate and additional-rate taxpayers may be able to claim back even more through their tax return or through the Government website, depending on individual circumstances.

Tax relief can significantly boost long-term returns.

Using available pension allowances

Depending on your circumstances, it may be possible to make larger contributions by utilising unused allowances from the previous three tax years.

This is often useful for people trying to catch up on retirement savings later in life.

Review existing pension pots

Many people accumulate multiple pensions throughout their working lives as they move between employers.

Reviewing older pensions can provide a clearer picture of overall retirement savings and whether existing arrangements are still suitable.

A financial adviser can also assess whether pension consolidation may be appropriate.

Small changes can make a big difference

While concerns around pension adequacy and the future of the State Pension are growing, there are still opportunities for people to improve their personal financial position before retirement.

Reviewing pensions early and making small changes consistently can make a meaningful difference later in life.

How a financial adviser can help

A financial adviser can help individuals understand whether they are on track for retirement, identify gaps in their retirement planning and explain ways to improve pension savings in a tax-efficient way.

To check on how your pension savings are adding up – and for what to do if they’re not – get in touch with one of our advisers today.

Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is also not a reliable indicator of future performance. Always seek professional advice before making financial decisions.