Tax, investments and pension rules can change over time so the information below may not be current. This article was correct at the time of publishing.

Five tips to help stop inflation damaging your retirement spending power

You will have seen the cost-of-living crisis mentioned a lot recently and no doubt noticed the price rises in fuel, electricity, gas and food. You may not have yet thought about the impact that rising inflation can have on your future standard of living when you retire, it is important to review your pension plans as soon as possible.

Below we give you some tips on how to prevent the rising cost of living and inflation damaging your spending power at retirement.

1. Start saving into your pension as early as possible

Even if you are young and retirement is a long way off for you, it is never too soon to start planning for your retirement. We can help you start a pension if you do not currently have one. The earlier you start saving into your pension, the longer that your money is invested giving it a greater chance of growing over time due to the power of compound interest. Compounding is when your investment grow and you then achieve additional growth on the new larger balance each year.

2. Make the most of tax breaks

You may not be aware that you receive an automatic top up of 20% on all your pension contributions subject to certain limits. This is basic-rate tax relief. The government pays this money directly into your pension via your pension provider, so you do not need to do anything to claim it.

If you’re a higher or additional-rate taxpayer, you can claim the additional 20% or 25% tax relief respectively through your annual tax return.

High inflation rates means that it is critical to take advantage of these tax breaks now as they will make a big difference to your future income at retirement.

3. Carry forward unused pension allowances 

You can invest as much as you choose into your pension, but currently you only get tax relief on up to £40,000 in each tax year or 100% of your annual earnings if that is lower.

Providing you have already maximised your current year’s pension allowance, you can carry forward any unused allowance from the past three tax years. That means you could add up to £160,000 to your pension pot. This is particularly useful for those who are self-employed as their income is likely to fluctuate.

If you have already utilised your own pension allowances, you could consider paying into your spouse’s pension or starting a child’s pension. If your spouse of child is a non-tax payer they will receive tax relief of 20% on up to £2,880 a year.

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4. Pay into your pension to reduce your taxable income

As mentioned above, the automatic pension tax relief on personal contributions is paid at the basic tax rate of 20%, so if you’re a higher-rate or additional rate taxpayer, you can claim the additional 20% or 25% in your self-assessment tax return. The more that you pay into your pension, the less tax you will pay on your income meaning that you have more money to save towards your retirement.

5. Choose appropriate investments for your pension

Some pension savers are more worried about market volatility than inflation and this is reflected in their investment choices meaning that often their pensions are losing value in real terms. Investing can deliver returns that beat inflation even after you retire. If you are investing into your pension you are likely to have a long time frame to leave your money invested for giving it a greater chance of growing in value over time. At Four Wealth Management, all clients are offered an annual review meeting to discuss their aims and objectives and make sure their investments are still appropriate for their goals and time frames. For example, if you have already retired you are likely to take less risk with your investments compared to those who have just started in their careers.

Review your pensions today

Book a no-obligation meeting with a financial adviser at Four Wealth Management to review your existing pensions and discuss your options to protection your retirement from inflation.

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The value of an investment with St. James’s Place will be linked directly to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

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If you have any queries or would like to arrange a face to face meeting with an adviser for a no obligation review of your personal finances, simply book a call back using the form below. Alternatively, you can call us on 0117 973 0500.

The Partner together with St. James's Place Wealth Management plc are the data controllers of any personal data you provide to us. For further information on our uses of your personal data, please see the Partner's Privacy Policy or the St. James's Place Privacy Policy.

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Five tips to help stop inflation damaging your retirement spending power
FourWealth Management