Top 25 ways to boost your pension!

by Jane Baker on 22 January 2010  |  6 comments
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If your pension pot isn't quite as big as you hoped, here are 25 ways to give it a helping hand before you retire.

If you know how to the play the pensions game, you'll give yourself a much better chance of squeezing a higher income from your pension pot. Here are 25 ways of doing just that:

Before you retire

1. Save more now - Topping-up your pension in the run up to your retirement is a great way of boosting its value with tax relief and capital growth over the coming years. Savings accounts are paying rubbish rates right now. Your money could be put to better use in your pension.

2. Use ISAs to supplement to your retirement income - ISAs can provide you with a tax-free income in addition to your pension. If you already have £9,000 or more in old ISAs, transfer them to the Santander Direct ISA and earn a market-leading 3% (tax-free) on your entire balance.

3. Defer your State pension - Defer for up to five years and you could dramatically increase your income from the State pension. Find out how in Boost your pension by 52%.

4. Buy back 'missing years' - This allows you to buy 'missing years' to close the gap in your national insurance contributions (NICs) record, qualifying you for a full State pension. Find out how in Boost your pension by £960 a year.

5. Check if you qualify for Pension Credit - Pension Credit guarantees a minimum income of £130 per week if you're single, or £198.45 per week for couples. If you're entitled to this top up, you'll need to claim it from The Pension Service. Find out more at DirectGov.

6. Retire later - This will give your pension the chance to increase in value over time and potentially yield more income. Plus annuity rates are higher the older you get which will improve your income too.

7. Take tax-free cash - You can take up to 25% of your pension pot as tax-free cash. Tax-free equals more money in your pocket!

8. Take tax-free cash but defer your pension - If you can afford it, leave the remaining 75% of your pension invested. It could grow in value and provide a larger income in the future. Of course, if it's invested in the stock market, it could fall in value as well.

9. Recover lost pensions - A forgotten scheme can really help to increase your income. Start your search using the Pension Tracing Service.

10. Transfer old pensions - If there are still a few years left before you retire, think about transferring pensions which aren't doing well. The value may recover in a better home. Read Why you should transfer your pension.

Buying an income

Annuities convert your pension pot into an income. Here's some easy ways to get a higher annuity for your money:

11. Use the Open Market Option - Don't necessarily take the annuity offered by your pension provider. Shop around for the highest rates first. This is called using the Open Market Option.

12. Take advantage of Guaranteed Annuity Rates - Some older-style pensions come with guaranteed annuity rates attached which could be far higher than current annuity rates - so high, in fact, you could increase your income by half.

13. Use your health to boost your income - If your lifestyle means your life expectancy is below average - for example, if you smoke or you're overweight - you could qualify for higher rates from a special Smoker or Enhanced annuity. Read Enhance your pension income by 25% to learn more.

14. Use your health to boost your income even more - If you suffer from a serious medical condition you may qualify for even higher rates by applying for an Impaired Life Annuity. This could increase you income by up to 40% compared with a standard annuity.

15. Use your postcode - People living in deprived areas are likely to have a lower life expectancy than those who live in affluent areas, and therefore receive higher annuity rates in return. Read Will your postcode affect your pension?

16. Consider a with-profits annuity - These annuities are invested in a with-profits fund and have the potential to provide a rising income if the fund performs well. You'll also be guaranteed a minimum level of income. But they can be risky, meaning your income could drop. Read How to profit in retirement.

17. Defer your annuity - Older people get higher annuity rates so the longer you leave it the better. Today, the best rate for men aged 65 is 7.2% rising to 8.2% for men aged 70. With a pension pot of say £50,000 that would increase income by £500 a year for life.

18. Use an Unsecured Pension - An Unsecured Pension or USP allows you to take an income from your pension but leave the remainder invested on the stock market. The idea is your pension will rise in value and allow you to take a greater income but this option comes with a risk warning. It's similar to number 8 (above) but allows you to take an income from the sum you've left invested. Read Increase your pension by £1,000 for the full low-down.

19. Choose a third way annuity - This is a halfway-house between standard annuities and USP. It provides exposure to riskier assets but also guarantees to provide you with a minimum level of income. Check out A new way to boost your pension income.

20. Buy an Immediate Vesting Pension - You can put money in a pension, benefit from tax-relief and then turn it into an income instantly using an Immediate Vesting Pension. This will boost your contribution by at least 20% almost overnight. Find out more in Part 1 of Three ways to boost your pension you've never heard before.

21. Use a purchased life annuity - Once you've taken 25% tax-free cash from your pension, paying it into a purchased life annuity is a tax-efficient way of turning your pension savings into an income. Part of the money will be deemed as a return of your original capital and will be tax-free. Find out more in Part 2 of Three ways to boost your pension you've never heard before.

22. Use triviality rules - If the total of all your pension schemes is pretty small - less than £17,500 - you may be able to take the whole lot as cash with 25% tax-free, and skip annuities entirely which may lock you into a low rate. Read Part 3 of Three ways to boost your pension you've never heard before.

23. Retire in stages - Taking your pension in small chunks can be highly tax efficient. You'll be entitled to 25% tax-free cash from each chunk and a small pension income from the remainder which may only trigger a low income tax charge, particularly in the early years before your pension income builds up.  

And finally

24. Don't take your pension if you don't need it yet - It sounds pretty obvious but the longer you leave your pension the better as it has more time to accumulate a bigger pot.

25. Join our Get ready to retire goal - This goal will give you all the help you need to make the right decisions at retirement including when and how to take benefits from your pension.

If you have a question about boosting your pension income, check out Q&A for help. And take a look at the pension and annuity questions to see what other lovemoney.com readers are talking about.

More: Top 10 pension tips for 2010 | Don't work until your dead