People paying into a workplace pension have been urged to check whether their employer will match any extra contributions, with investment platform AJ Bell warning that savers could be missing out on additional “free money”.
The advice follows figures showing millions of people are not putting enough aside for retirement. In May, the Pensions Commission published its interim report on the state of retirement saving in the UK, revealing that around 15 million people were undersaving for retirement.
Check for employer matching
AJ Bell shared advice for savers, including making the most of “free money” from pension contributions. The firm said: “If you’re putting money into a workplace pension, and only making the typical minimum 5% contribution under auto-enrolment rules, it’s worth checking with your employer if they will match any extra money that you pay in, up to a certain level. Many employers do offer some kind of matching alongside the typical minimum 3% contribution, and you could be missing out on extra ‘free money’ if you overlook it.”
If no extra contribution is on offer from an employer, AJ Bell said savers could consider other pension options, such as a SIPP, which offers additional investment choice and flexibility and can be accessed from age 55, rising to 57 in 2028.
Ways to boost contributions
For those who cannot afford higher contributions now, AJ Bell suggested pledging to pay more in when receiving a pay rise or working longer hours. The firm advised basing contributions on a percentage of salary so they rise automatically with income, and revisiting payments with each pay rise to see if there is room in the budget to increase them.
Savers were also told they could consider one-off payments whenever they receive a lump sum, whether from a bonus, a gift from a family member, or other lump sums like a Premium Bond win.
Finding lost pensions
AJ Bell also highlighted the issue of lost pensions, noting: “The Pensions Policy Institute estimates there are around 3 million pension pots currently gathering dust, worth £6,220 on average, so it’s worth checking if there are any with your name on them that could boost your retirement income without costing you a penny.”
The firm pointed to the government’s Pension Tracing Service as a useful tool for locating missing pensions, and said some providers may also be able to help. AJ Bell, for example, has a ‘ready-made pension’ service and pension finding tool that allows people to find pensions and combine them into a ready-made pension account.
Before transferring any old pensions, savers were advised to check there are no valuable benefits attached that could be lost, or exit charges that will be applied, with the provider able to confirm this.
Planning for retirement income
AJ Bell recommended using a pension calculator after finding pensions, allowing savers to input their pension saving so far, monthly payments, and planned retirement date to see the pot they are on track to build and the expected income. The firm also noted that making active investment choices, rather than staying in a default fund, could help money work harder, with a SIPP offering more opportunity to tailor a portfolio.
Regarding tax-free cash, AJ Bell said there is nothing wrong with taking it at any stage as long as it is factored into plans from the outset, and advised using a pension calculator to see the impact on annual income. For income in retirement, the firm noted drawdown offers flexibility over how much and when to take money, and allows any unused pot to be left to family, while an annuity provides an income for life but removes flexibility, making it important to consider inflation and one-off costs.
