10 ways to make the most of your pension.

Home 10 ways to make the most of your pension.
Financial Gosia Dawson
3 Feb 2023

Everybody has different needs and there is no single rule about how much will you need in your retirement (how long is a piece of string, right?). State Pension will provide some income but it might not be enough to support a comfortable life.  

The most important part would be to ask yourself how much money would you need per month to spend. From there you would need to find out how much you need to be saving to achieve that income.  

This is where a Financial Planner comes in to help. I believe that the key to a happy retirement is a sensible plan. Start small, regularly, and go bigger when you can.

To help you start, I put together this list of 10 things to make the best of your pension.

Start saving for your pension as early as possible

The best time to start saving into your pension pot is now. You might think you can delay putting money aside until you can ‘afford to’, or when you earn more money but you might also risk leaving it too late. Simply put, the longer you delay, the more it will cost you to build a sizable pension. Over time, the longer you save, the more you could have at the end, and with compound interest, you will earn growth upon your growth.

Increase your pension contribution whenever you can

Once you started to save for your pension, make sure you review your contributions on regular basis. If your income increases, check if you could increase your pension contributions as well. Even a small increase can make a big difference in the long term. If you receive a bonus, investing a part of it into a pension could also be a good idea but make sure you don’t go over your allowed limits.

Maximise your annual pension allowance

The annual allowance is the maximum you can save in your pension in a tax year before you pay tax. Your annual allowance applies to all your pension plans, including your employer contributions, your personal contribution and any other contributions you pay into a private pension or SIPP. Also, any increase in your defined-benefit scheme would count towards your annual allowance. You might be able to carry over any unused allowance from the previous 3 tax years.
However, if your threshold income (for the tax year 2022/23) is over £200,000, and your adjusted income is over £240,000, your allowance will be reduced. For every £2 your adjusted income goes over £240,000, and your annual allowance for the current tax year reduces by £1. The minimum reduced annual allowance you can have in the current tax year is £4,000.

Regularly check your pension pots

It would be sensible to check the performance of your pensions and it would be worth getting some advice to review them. How are your pensions performing? Are they still on track to achieve your goals? Are they still the right investments? Have your circumstances changed and does the risk level still suits you? There might be changes you should make to get your pension in line with your objectives and current situation.

Don’t rely on your property

It is common to think that your property is your biggest investment and will be part of your pension income. However, you need to consider several issues. You might need to sell the property you have been living in and buy a smaller property that you are not used to in a place you do not know. Selling your residential property might also take time and no one can predict the future value of that property. If you would opt for an equity release, your estate for inheritance purposes will be significantly reduced.

Don’t rely on inheritance

It is great to think you would receive an inheritance that would pay for your retirement. However, until you have the cash in your bank account, the money is not yours. It might be spent before you receive it, you might need to share it with other beneficiaries or there might be an inheritance tax bill that would eat up a sizeable chunk of the money.

Trace your old pensions

During your career, you might have several pension pots with different employers. It is not always easy to keep track of all of the pension pots you had, or pension providers to keep up with you. If you have changed an address, or name, and haven’t informed the pension provider, they will have no idea how to contact you regarding your pension. You could try to contact your old employer to find out the pension provider, you can use the government’s free Pension Tracing Service, or contact the pension provider directly if you know who they are.

Check the charges and other fees

Every pension plan has fees. High fees can affect the amount of money you will get at the time of your retirement. The fees need to be transparent and listed on your pension statement.

Typical fee structure includes:
  • Annual Management Charge (AMC) – the day-to-day cost of running your pension plan
  • Platform charge – this is the website or platform that you can manage all your investments
  • Fund charges – this is the charge for the particular investment fund you are investing in. You can invest in several different funds, each with different fees

Understand your retirement options

You will have more freedom to spend your pension funds in the future. But with more freedom, comes more choices and more difficult decisions. We might live longer than the previous generations and it is not unusual to plan for 25-35 years of retirement. With longer retirement, we need our pensions to last longer. This means making the right decisions regarding savings and investment to maximise your returns.

When you are ready to retire, you will be able to choose how to spend your money. You could take up to a 25% tax-free lump sum, you could create a guaranteed income by purchasing annuities or you could take money as and when you need it with a Flexi-access drawdown. We recommend seeking professional advice before making your final decision.

Leave a legacy

Pensions are typically outside the estate for inheritance tax purposes, and your beneficiaries will not pay inheritance tax on your pension. Your pension will most likely be inherited by the person you have nominated and recorded with the pension provider. If you die before the age of 75, the pension pots usually are inherited tax-free. If you die after the age of 75, your beneficiary might need to pay an income tax on withdrawals from your pension pot at their marginal tax rate. 

The performance of your investments is subject to risk(s). Its performance may fluctuate based on movements in the market and economic condition(s). Capital at risk. Currency movements may also affect the value of investments. You may get back less than you originally invested. Past performance is not a reliable indicator of future performance. Tax treatment is based on an individual’s unique circumstances

Gosia Dawson is an Independent Financial Adviser at Glade Financial Ltd, which is an Appointed Representative of Julian Harris Financial Consultants, authorised and regulated by the FCA No. 153566.

  • The content on this page is regularly checked by our onboarded advisers and experts.

Be notified when we add new articles


Our website offers information about financial products such as investing, savings, equity release, mortgages, and insurance. None of the information on Sunny Avenue constitutes personal advice. Sunny Avenue does not offer any of these services directly and we only act as a directory service to connect you to the experts. If you require further information to proceed you will need to request advice, for example from the financial advisers listed. If you decide to invest, read the important investment notes provided first, decide how to proceed on your own basis, and remember that investments can go up and down in value, so you could get back less than you put in.

Think carefully before securing debts against your home. A mortgage is a loan secured on your home, which you could lose if you do not keep up your mortgage payments. Check that any mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.