Your pension has the potential to be one of your most valuable assets, even taking into account your house, and it could make all the difference to your lifestyle in later life. So, it’s important you give it regular attention, whatever your age. We share five things to consider when it comes to making the most of your pension.

1. Make sure your pension is aligned with your goals

Gauging whether you’re on track to meet your retirement savings target is key. Regardless of your age, it’s important to roughly forecast this and have a plan to work towards. If you’re not on the same page, things could go off track quickly. So working towards a set goal will make things much more achievable.

You should estimate how much you think you’ll need in retirement each year and also consider at what age you hope to retire. Remember that retirement can last 30 years or more, so what you save up has to go a long way. Money Helper offers a calculator to help you estimate what you might need to be putting into your pension now to achieve the income in retirement that you would like. As your pension is invested what you have now will change in value and hopefully grow over time and benefit from compounding.

If you’re still not sure how much you’ll need each year or how to manage your pension effectively, a financial planner can assist you in setting realistic goals that consider inflation and help you get your finances in order. There’s generally a charge for advice services. And it’s important to remember the value of your pension investments can go down as well as up and you could get back less than was paid in.

2. Put in as much as you can

Your pension is a very tax-efficient way to save for your future thanks to tax breaks on what’s paid in. However, the amount of tax relief you get will depend on the rate of income tax you pay and the type of pension plan you have.

For some types of pension such as stakeholders or SIPPs, everyone (including non-taxpayers) gets 20% added to their pension contributions in tax relief. If you’re a higher rate taxpayer, you can claim a further 20% tax relief on your pension contributions, bringing the total relief to 40%. For additional rate taxpayers, the total relief can go up to 45%. However, it’s important to remember that tax rates differ in Scotland. Other types of pension, sometimes referred to as occupational pension schemes and are usually provided by your employer, give tax relief differently by deducting your contribution from your salary before income tax is calculated.

You can normally contribute up to £60,000 each year into your pension (known as the annual allowance) and still benefit from tax relief. It is dependant in your earnings – so can be less. And your annual allowance can also be reduced if you’ve already started taking income from your pension savings – known as the Money Purchase Annual Allowance. Or if or you have very high earnings which are over £260,000 – known as the Tapered Annual Allowance.

If either of those applies to you, you might want to consider getting professional advice.

3. Try not to rush into anything

The cost of living is a big issue for many people right now. But, if possible, it can make sense to avoid dipping into your pension pot or reducing what you’re paying in.

The purpose of a pension pot is to cover you financially in later life, and you can benefit more from any investment growth if you have as much in there as possible. Withdrawing money early reduces your pot size and takes away some of what could grow, particularly if you take money out when investment returns are low. And if you take income it can also limit what you can pay into your pension in the future. Accessing your pension now might help to plug a gap in the short term, but you could lose out in the longer term.

4. Bring your pensions together

When you have several pension pots, things can become complicated. It can be hard to keep track of how much money you have in each and what they’re likely to pay you in retirement.

Many people lose track of their pensions due to changing jobs or moving homes without updating their pension providers. In fact, there are an estimated 2.8 million lost pensions in the UK, worth around £26.6 billion. So combining yours into one plan could help ensure that nothing gets forgotten. Don’t rush into this though – you might have valuable benefits in a pension that could be lost if you move out of it. And consolidating pensions isn’t right for everyone.

To track a lost pension down, you need to know the name of your employer or pension provider. Don’t worry if you don’t have this information – you can use the Government’s online pension tracing service.

5. Think about getting advice

A financial adviser can help make sure you have a plan for your financial future that takes all your goals, plans and investment objectives into account – allowing you to concentrate on what you enjoy doing.

You can get free and impartial guidance from Pension Wise, either face to face or over the phone. Or if you think you’d prefer to get advice that’s specific to you, find out how abrdn's financial planning services could help you make the most of your pension and tax allowances.

While there’s generally a charge for advice services, this could pay for itself in the long run by way of improved returns on your money, tax savings and, importantly, peace of mind.

The information in this article should not be regarded as financial advice. Information is based on our understanding in September 2024. Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment.

abrdn Financial Planning and Advice Ltd is registered in England (01447544) at 280 Bishopsgate, London EC2M 4AG and authorised and regulated by the Financial Conduct Authority.