How can I build my pension pot?

Saving for retirement is one of the most important financial journeys in life, yet it can be fairly difficult to understand what needs to be done in order to build your pension pot.

Thankfully, there are more than a few ways you can build your pension pot and capitalise on its unique benefits, like the fantastic 25% tax relief and compound interest.

If you feel like you could be doing a little bit more to build your pension pot and have been wondering how to ‘grow my pension pot’ in time for a happy and financially secure retirement, here are some methods you can use.

Start contributing early

It’s never too early to start paying into a pension. In fact, the earlier you start, the greater your pot’s value will be when you retire. Even if you start paying in at 30 years old and stop when you’re 50, you’ll likely still end up with a larger pension than someone who contributed more money than you later on in life due to the effects of compound interest.

Compound interest is the interest gained on your interest. If you keep contributing, the compounding effect increases substantially, allowing you to maximise the value of your money over time.

For example, say you contributed £100 into your pension into a scheme with a 5% yearly interest rate. After the first year, your £100 will have turned into £105. In year two, you’ll earn an additional £5.25, and in the third year, you’ll earn £5.51, and so on.

If you consistently contribute toward that scheme every month, this compound effect can drastically increase the value of your fund. Say you put in £1000 a month every year for five years at a 5% interest rate – compound interest would theoretically help the value reach £68,289.44. The earlier you start contributing, the more money you can make using your initial investments.

Delaying retirement

You could try and build your pension pot by delaying your retirement date, giving your pot more time to grow as it stays invested for longer.

Moreover, this can reduce the amount of money that you’ll need to rely on throughout your retirement, diminishing the chances of you outliving your pension pot. You could also consider buying an annuity to guarantee you an income if you’re worried about this.

You can also defer your state pension in an effort to increase its value – you can find out how to do this on the government’s website.

Use the drawdown method

The drawdown method can enable you to take lump sums out of your pension (when you reach the eligible age) as and when you need them while keeping the remainder of your savings invested, enabling them to potentially continue growing in value.

You can withdraw up to 25% of your pension in tax-free lump sums, but if you take any more, it will be taxable as income.

Consolidate your pensions

There is a good chance that you’ll have more than one pension pot lying around, especially if you’ve had multiple jobs after 2012.

Consolidating your pension pots (when you bring your pensions together) can help you reduce fees, increase the amount of accessibility you have over your money, and help you invest with ease.

It cuts down on admin, too, while potentially enabling you to make your money work harder – if one pot is performing better than the other, why not fully capitalise on the best one?

How iSIPP can help build your pension pot?

At iSIPP, we’re firm believers in the power of pension consolidation. We go above and beyond to offer our customers the tools and the expert advice necessary to successfully manage and consolidate their pension in the modern age.

If you feel as though you lack the means to truly grow your pension pot and invest it in a way that best suits your needs, we’re here to help. You can reach out to our team today – we would love to help you take your savings to the next level.

Disclaimer 

The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.