5 steps to take now as a Generation Xer if worry you might have inadequate pension savings

Published on February 16, 2024 by Andrew
A man and a woman look at a document with a financial adviser.

Generation X gave us Britpop, Cool Britannia, and the internet culture that underpins the modern world. But, if you’re a Generation Xer, you may now be at the point in your life when you start worrying about your pension savings.

The findings of a new study published by PensionsAge reveal that 52% of Generation X (people born between 1965 and 1981) are not confident they have saved enough to achieve a good standard of living in retirement.

In fact:

  • 38% said they were not at all confident they would have enough money
  • 10% didn’t know if they would have enough for a comfortable retirement
  • 4% said they hadn’t thought about it.

So, with a majority of the generation feeling anxious about their retirement funds, here are five steps to take if you’re a Generation Xer and you think you have inadequate pension savings.

1. Increase your pension contributions

One of the simplest ways to boost your retirement fund is to increase your pension contributions. Though this may not be possible for everyone, the Institute for Fiscal Studies (IFS) reports that fewer than 1 in 100 private sector employees increase their pension contribution rate in response to a 10% pay rise.

Furthermore, the IFS also found little evidence that people increase their pension contribution rate after paying off their mortgage or their children leaving home, despite these being two of UK adults’ most significant outgoings.

You can voluntarily increase your pension contributions, either into an existing workplace pension or into a separate private pension. Some employers may also match your contribution increase, giving your fund an extra boost.

In the 2023/2024 tax year, most people have a pension Annual Allowance of £60,000. The Annual Allowance is the maximum amount you can contribute to your pension in a single tax year without facing an additional tax charge. It’s worth noting that your Annual Allowance may be lower if your income exceeds certain thresholds or you have already flexibly accessed your pension.

So, if your earnings rise, you pay off your mortgage, or you find yourself with more disposable cash than usual, you might consider topping up your pension through increased contributions.

2. Revisit your retirement plans

Delaying your retirement for just a few years can make a significant difference, especially considering many people end their careers on their highest salary.

Actuarial Post reports that a 60-year-old who chooses to retire with a pension worth £200,000 could have a retirement income of roughly £4,900 a year.

However, if they deferred their retirement for one year and made workplace pension contributions of £200 a month, their fund could grow to around £211,000.

Furthermore, with one year less of retirement to fund, their pension could provide them with an income of around £5,700 a year, which is £800 more than if they retired just a year earlier.

(Note that these calculations are based on pension growth of 4.25% a year after charges).

You may also benefit from thinking about changes to your living arrangements during your retirement. For example, downsizing or changing location could mean you have a larger fund when you decide to stop working.

Starting to make these plans for your retirement years now could give you enough time to save for your desired lifestyle.

3. Invest any lump sums you receive

If you receive a work bonus, inheritance, or even a tax rebate, investing some of that extra cash into your pension could lead to big returns in your retirement years.

Research from Standard Life shows that one-off contributions of £1,000 every five years can boost your pension by £23,000 in retirement.

If you receive a large sum, you’ll need to be careful not to exceed your Annual Allowance. You might look back at previous years’ contributions and look at “carry forward” options.

Carry forward allows you to make use of any Annual Allowance that you have not used during the previous three tax years. So, if you didn’t maximise your pension contributions in any of the last three years, you could invest a lump sum into your pension and benefit from tax relief.

4. Check your State Pension

To qualify for the maximum new State Pension, you normally need to have made 35 years of “qualifying” National Insurance contributions (NICs).

If you haven’t paid enough years and are nearing your retirement, you can make voluntary contributions and buy National Insurance credits to ensure you receive the maximum State Pension.

You can check your NICs on the UK government website and make additional credit purchases there. Making small additional payments now could lead to a significant boost to your State Pension in later life.

5. Make sure you claim your tax relief

Pension tax relief allows you to claim Income Tax back on your pension contributions. It means that if you pay the basic rate of Income Tax, a £100 pension contribution only “costs” you £80. If you’re a higher- or additional-rate taxpayer, you can usually claim an additional 20% or 25% in tax relief.

While you normally receive the basic-rate tax relief at source, you’ll likely have to claim the additional relief through self-assessment or by contacting HMRC.

Research by interactive investor found that a third of higher-rate taxpayers who pay into a private pension were missing out on the additional 20% tax relief on their pension contributions by not completing a tax return.

If you pay £5,000 into a private pension each year, you could be missing out on an additional £1,250 in annual pension tax relief.

Get in touch

At The Pension Planner, our team of expert financial advisers can build a plan that aligns your finances with your ambitions and reassure you that you are on target to achieve them. If you’re not on track to meet your goals, we can also make recommendations to help you get there.

If you want to speak to us about how to improve your retirement savings, get in touch. Email info@thepensionplanner.co.uk or call 0800 0787 182.

Please note:

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

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