As we begin a new year, it never hurts to review your current plans for retirement and the pensions that you hold.
The last 12 months have been difficult on many individual’s finances and the volatility of the markets has meant that savers pension pots have been significantly affected by the events of the pandemic.
While we currently remain restricted in our daily lives by the Government’s response to COVID-19, now is a good time to think ahead and plan for a brighter future.
It is easy to put off thinking about your pension, especially if you are still young, but by taking action earlier in life you could put away more for the future.
To help you put plans in place, whether retirement is just around the corner or decades away, here are some simple steps to take this year.
Review your pension pot
You can’t plan without knowing how much you already have saved. You should take the time to check your annual statement to see the size of your current pension pot, as well as checking any pensions you have had with previous employers.
If you’ve lost track of any pensions, then now is the time to find your documents and make sure you can access your retirement funds. The Government will soon launch a pensions dashboard to assist savers with this, but for now, it is worth conducting a check on your own.
Once you have found out what your current position is, you might want to think about topping up your pension or assessing how your pot is invested.
It may be that you can take on additional risk if you feel that you need to build your pot faster and are comfortable with doing so.
Don’t get taxed
Remember, the 2020/21 tax year ends in April 2021, which means you’ve still got time to pay in your annual earnings (capped at £40,000) before facing a tax charge.
If you have enough unused annual allowance from previous years to carry forward you may not be taxed on amounts above the annual earnings cap. You can carry forward unused allowance from the three previous tax years.
Savers should also be mindful of the pension lifetime allowance. This is a limit on the amount of pension benefit that can be built within a pension scheme without triggering an extra tax charge.
The lifetime allowance for the tax year 2020/21 is £1,073,100 and it is likely to increase in line with inflation at the end of the current tax year in April.
Once you have established your current position and gained control of your pension, the next step is to adjust for any changes and set your goals for retirement.
Your pension should enable you to live the life you want, and by planning you can ensure that you set your plan in motion to enjoy a comfortable retirement.
By seeking professional, independent financial advice, you can ensure you are managing your pension tax-efficiently, while still contributing enough to meet your goals.