Even if retirement isn’t far away, there are ways to increase your retirement income. This applies both to your State Pension entitlement as well as to any personal or workplace pension pots you have. Find out what you can do.
The two main options – save more or delay
You still might have time to boost your pension. You have two main options:
- delay the date you’ll start taking your retirement income
- top up your pension savings by adding to an existing scheme or starting an extra one.
It’s risky to try to boost your pension pot by investing in higher-growth investments in the run-up to retirement.
If the investments fall in value, there might not be time for them to recover before you want to start taking money from your pot.
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Increasing your pension savings
If you have a defined contribution pension, either through your workplace or one you’ve set up for yourself, you might be able to make extra contributions to it. This will help you build up a bigger pot, which you can then use to provide income in retirement.
Making extra pension contributions in the years before retirement brings an immediate boost in the form of tax relief.
You can think of this as ‘topping up’ your pension. To increase your pension contributions, get in touch with your employer or your pension provider. One of them will be able to update your contributions.
Be aware that there’s a limit on how much you can contribute annually while benefiting from tax relief.
This was set by the government and is known as the annual allowance. It’s currently £60,000 for most people.
However, you can also only receive tax relief up to 100% of your earnings. So if your earnings are lower than £60,000 you'll be entitled to tax relief only up to the amount you earn.
For some high-earners (with income above £200,000) and those who have taken money from their pension flexibly, the allowance might be lower.
It might be possible to contribute more than your annual allowance and still benefit from tax relief by using unused allowance from up to the three previous tax years.
There’s also an overall limit to how much you can build up in pension benefits without getting extra tax charges. This is known as the lifetime allowance (£1,073,100). However, since April 2023, the extra tax charge no longer applies. The lifetime allowance is set to be abolished in April 2024.
Delaying taking income from your workplace or personal pension
Delaying when you’ll start taking your retirement income could boost your pension in a number of ways:
- If you have a defined contribution pension it allows more time for you to contribute to your pension pot and more time for it to potentially grow, so you might have built up more savings by the time you retire. But you might need to think about changing the way it’s invested to align with the way you intend to use your pension pot when you retire.
- Rates for guaranteed income products (annuities) also tend to increase as you grow older. So if you’re considering using your pension pot to buy a guaranteed income, delaying might mean you’ll get a higher income, as long as overall annuity rates aren’t falling.
- If you’re thinking of taking a flexible retirement income from any pension pots you have, starting to take the money later can give you a better chance of making it last as long as you need to. And it might allow you to take a higher income at the start.
- If you have a defined benefit pension, starting to take your income later could mean you’ll get a higher income when you begin taking the money. It might also save you paying tax on the income if, for example, you’ll still be working. You’ll need to think about how much extra you’ll get and how long it might take to regain the income you’ve missed out on.
If you’re thinking about delaying taking your pension, speak to your provider to understand your options. And to check whether there’ll be any charges for changing your retirement date.
Find out more, including the benefits and potential risks of deferring your pension, in our guide Retiring later or delaying taking your pension pot
Making the most of your State Pension
If you reach State Pension age on or after 6 April 2016, you’ll need at least 35 qualifying years of National Insurance contributions to get the full new State Pension of £203.85 a week.
These contributions can be a mix of those you’ve actually paid and others you’re treated as having paid.
For example, during periods when you were bringing up young children or unable to work because of health problems.
If you have fewer qualifying years, your pension entitlement will be proportionately lower.
For example, if you have 23 years of National Insurance contributions, you’d be entitled to two thirds of the full pension.
Because working lives tend to be 40 years or so, many people will meet the 35-year condition.
But if you don’t, you might be able to fill in some gaps in your National Insurance record by making voluntary contributions now.
Missing National Insurance contributions
If you’re not sure whether you’re on track to have made the National Insurance contributions needed to get the full State Pension, you can ask for a State Pension forecast, which might help you decide.
Voluntary National Insurance contributions
If you want to fill in any gaps in your National Insurance record, you usually have to make the top-up payment within six years of missing the original payment. You do this by paying voluntary contributions.
There are some exceptions when you can buy years further back.
The cost for each ‘missing year’ will depend on your circumstances.
Delay taking your State Pension
Delaying the date you start taking the State Pension can make a big difference to the level of pension you’ll get.
For those who reach State Pension age after 6 April 2016, the new State Pension rules will apply. This means your State Pension will increase by 1% for every nine weeks you defer.
This works out as just under 5.8% for every full year.
The extra amount is paid with your regular State Pension payment.
This could be a good option if you’re likely to continue working after your State Pension age. If you’re considering this option, think about how long it might take to regain the lost income though.
