According to iNews, the “middle class” hobby of foraging has increased in popularity in 2022. While you may think this is because people are looking to get out into nature or connect with the origins of their food, in fact it’s simple economics.
The article explains that with the soaring cost of living, foraging is helping some households save money as food prices continue to rise. According to the Guardian, UK food prices soared by 10.6% in September 2022, a record amount that’s largely been blamed on the war in Ukraine.
At a time when the cost of energy, food and other goods shows no sign of dropping anytime soon, a report by FTAdviser makes for sober reading. It reveals that pension savers may need an additional £90,000 in their retirement fund to deal with the added costs created by skyrocketing inflation.
Read on to learn more about the research, and five clever ways you could help boost your pension pot to help ensure that you can beat inflation and enjoy the lifestyle you want in retirement.
Inflation means you may need to boost your pension by £90,000
According to the FTAdviser report, research by PensionBee shows that an “average retiree” would need an annual income of £19,000 to maintain a comfortable lifestyle. To achieve this, they would need an overall pension pot of £330,000, assuming an annual growth rate of 5% and 0.5% in fees.
Yet with rising inflation in 2022, the pension provider said that the retiree’s income will have to increase to £21,000 a year to maintain their standard of living. This means that they will need an additional £90,000 in their pension pot to cover the extra income needed.
Furthermore, the article also reveals that pensioners looking to maintain a “luxurious lifestyle” would need to withdraw an additional £3,000, rising from £31,000 to £34,000 a year. All of the calculations were based on inflation averaging 10% in 2022 and 2023, 5% until 2028 and 2.5% for the next 13 years.
With this in mind, let’s look at five clever ways you could boost your pension pot to help ensure that you can enjoy the retirement lifestyle you want, despite rising inflation.
1. Increase contributions
Pension contributions typically receive tax relief, which means that every £100 placed into a retirement fund costs just £80 if you’re a basic-rate taxpayer (2022/23). If you’re a higher-rate taxpayer it will cost £60, and as an additional-rate taxpayer you may only pay £55.
This means that increasing your contributions could provide a significant boost to your pension pot. Please remember that while you can contribute any amount to your pension, the level of tax relief is typically restricted to £40,000 or the amount you earn, whichever is the lower (2022/23).
If you’re a very high earner, the amount of pension contributions that receive tax relief may be reduced to £4,000.
2. Use carry forward if possible
If you have a substantial lump sum, for example through an inheritance, you might want to consider “carry forward”. This allows you to use unused amounts of Annual Allowance from the last three years, meaning that you may be able to contribute up to £160,000 in 2022/23, and still receive tax relief.
Strict rules apply to carry forward, so always speak to a financial planner to ensure it’s right for you.
3. Take the right level of risk
The assets typically contained within your pension pot will consist of stocks and shares, bonds and cash. As potential growth is usually provided by the higher-risk funds, such as stocks and shares, not having enough exposure to them could lower the potential growth of your retirement fund.
Ensuring that your pension has enough exposure to higher-risk funds could boost its growth potential. A financial planner can help ensure your pension pot is exposed to as much growth potential as possible, while retaining a level of risk you’re comfortable with.
4. Find lost pensions
According to PensionsAge, an estimated 1.6 million pension pots in the UK, worth an estimated £37 billion, have been “lost” or are dormant. If you think you have lost previous pensions, finding them may provide your retirement fund with a significant boost.
A financial planner could help you to locate your missing pensions and explain the best options available to you. This could include consolidating them, as it may provide greater growth potential and might reduce fees.
Please remember that merging pensions carries risk, so speak to a financial planner first.
5. Claim back all your pension relief
According to Pension Bee, many higher-rate taxpayers do not claim their full tax relief on pension contributions. If you’re a higher-rate taxpayer, you can typically claim all of the 40% tax on contributions, although HM Revenue & Customs only returns the basic-rate of tax (20%) to your pension provider automatically (2022/23).
This means that you need to claim the additional 20% through self-assessment. You will also need to use the same process if you’re an additional-rate taxpayer claiming back your additional 25%.
While filling your self-assessment in may feel like hard work, not doing so could deprive your pension pot of a significant boost in value. This means it might lose value in real terms against inflation, potentially depriving you of the retirement lifestyle you hoped for.
Get in touch
If you would like to discuss your pension pot and how you could boost its growth potential to help inflation-proof your retirement, please contact us on hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high quality service.
Please note
This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
Workplace pensions are regulated by The Pension Regulator.
