It's tough out there. Things are not worth what they used to be and there's not as much money floating around. And the same can be said for pensions- for some years now there has been debates about whether they are worth it or not, many pension schemes no longer exist and with fewer and fewer companies offering a final salary pension scheme, what are the best ways to top up any existing pensions contributions you may have made?
Firstly everyone outside a final salary scheme should be saving as much as they can realistically afford in a private pension fund. Those who are nearing retirement age and still want to retire at 65 even when there are plans for this to be increased will have to make up for the shortfall a later retirement age will cause.
Currently the state pension stands as 95.30 pounds per week, which may come as a shock to most and certainly won't fund a fun filled retirement full of holidays and new hobbies if you are having to scrimp and save just to make ends meet.
To put it in perspective a 25yr old putting 100 pounds per month into a pension fund will end up with a pension worth 96, 268 pounds based on a growth of 7 per cent a year. If this age is 35, then the figures change dramatically to 46,371 pounds.
Some other ways to increase your pension
Salary Sacrifice
This is where you opt to take a lower salary, which is not as bad as it first sounds as if you move into a lower tax band then the income tax taken from your wages will also be reduced considerably, so this means you could increase your pension whilenot loosing out to much in terms of take home pay. Your employer pays less national insurance contributions so both sides win and you can end up with 20 or 40 per cent tax relief depending on which salary bracket you are in.
Release money tied up in your property
If things are late to make a real difference to your pension using other means then utilizing the money tied up in your house although not as much as it once was in the current market. You can release the money in a lump sum or overtime a drawdown mortgage is the best option as it allows you to get the money in stages. Another option is to move into a smaller property which costs less and use the savings to top up a pension.
Borrow to invest
This is the riskiest strategy in the current climate, but it is now possible to take out a loan up to 50 per cent of your pension and invest that money in any eligible pensions investments that you wish. The reason it is so risky as with any stock market is that if the investments you make go down in value then so does your shares and to cover the losses the whole fund may need to be sold.
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Date Published :
Nov 20 2009