Maximising tax relief, tracing lost pensions, paying into a partner’s pot and other ways to make the most of your retirement savings

With increasing numbers of us facing financial hardship in retirement, we look at seven ways you can maximise every penny in your later years.

It’s a sad fact that pensioner poverty is rife, with plenty of statistics bearing out that many retirees are surviving on a pittance.

According to the latest data from investment firm Hargreaves Lansdown, only 38% of households are on track for a moderate income in retirement – the minimum standard most of us would like to achieve.

With this in mind, the firm has put together six ways to avoid common pension pitfalls – and we’ve also added one of our own.

6 reasons your pension might be worth less than you think

1. Claim tax relief

Dubbing tax relief the “hidden hero of retirement”, Hargreaves Lansdown points out that Basic Rate taxpayers can receive £100 into their pension by saving just £80 themselves.

This is because the money you would have paid to the Government in taxes goes into your pension.

And the scheme is even more attractive for higher earners.

Higher and Additional Rate taxpayers only need to contribute £60 and £55 respectively to see a £100 payment into their fund.

As pension relief is normally added at the Basic Rate, Additional and Higher Rate taxpayers may need to claim the extra relief by filing a Self-Assessment form.

Surprising things you can claim on your Self-Assessment tax return

2. Don’t let your auto-enrolment contributions languish

Setting your workplace auto-enrolment contributions at the minimum level can also be costly.

The minimum contribution for the 2024/25 tax year is 8% – 3% from employers and 5% from employees.

However, you can increase these contributions.

If you want to avoid a meagre retirement, it’s worth increasing your contributions if you are in a position to do so – if, for example, you get a pay rise.

You can also ask your employer if it will up its contributions into your pension if you increase yours.

This is known as employer matching.

When saving into a pension isn’t a good idea

3. Get maximum benefit from your allowances

Most Brits can put up to £60,000 into their pensions during 2024/25 and still receive tax relief.

Hargreaves Lansdown points out that £60,000 worth of contributions would cost a Higher Rate taxpayer £36,000, making it an extremely effective way to save for retirement.

You can also still benefit from unused allowances from the past three years.

In theory, this means you could contribute up to £200,000 this year – although not many of us could afford to do so.

4. Hunt down lost pensions

If you frequently change jobs, you can easily forget about pensions from old employers – or misplace the details.

The Government’s Pensions Tracing Service can help you track down lost funds.

To do so, you’ll need the name of your employer or pension provider.

Consolidating pensions into a single fund may help prevent you from losing track of them again.

However, it’s wise to check for any costly fees for transferring out of your current pension.

You should also make sure you won’t lose out on attractive perks such as guaranteed annuity rates.

You can read more about annuity rates below.

Don’t miss out on £24,000 of YOUR pension cash

5. Seek out the best annuity rates

When you retire, you have several options for your pension savings – one of these is to buy an annuity.

This is an insurance product that will convert your fund into a regular income.

You can buy an annuity if you have a personal pension or a defined contribution workplace pension. (A type of pension in which the amount you receive is based on contributions from you and your employer and not your salary).

According to Hargreaves Lansdown, rates for annuities are currently extremely attractive, so this may be an option worth considering.

However, scouring the market for the best rates for your circumstances is vital.

As with any financial decision, accepting the first quote you’re offered could be a financial disaster.

This is especially true with an annuity, as you generally cannot close these products once opened.

You can read more about buying an annuity in this article.

6. Pay into your partner’s pension pot

As well as the tips from Hargreaves Lansdown, paying into your other half's pension can be a great way to maximise tax relief.

Using this tactic, a saver diverts some (or all) of their own pension savings into their partner’s fund.

In some cases, it can be a more tax-efficient way to save for retirement.

One major advantage is to get maximum benefit from your Personal Allowance.

When you retire, you will have a Personal Allowance (an amount you can earn before you start paying Income Tax).

If one member of a couple has little, or nothing, in retirement savings, they won’t even approach their full allowance.

As a result, the couple is missing out on tax-free cash.

You can pay in up to 100% of your partner’s salary, up to the level of the annual Personal Allowance.

However, this falls to £2,880 if your other half isn’t working.

Of course, this strategy comes with risks if the relationship doesn’t work out.

7. Consider getting advice

If you’re uncertain what to do with your pension pot, getting help from an experienced financial adviser can be invaluable.

They can steer you towards the best home for your pension and help you save in the most tax-efficient way for your circumstances.

Pensions advice: when you need it, where to get it and how much it will cost

A word of caution

When it comes to financial advice, you should always ensure you’re getting what you pay for.

Before choosing an adviser, go through their fees with a fine tooth comb and ask exactly what they offer for these charges.

You should also ask a potential adviser if they have experience working with similar clients to you.

It’s also worth enquiring whether they offer a whole-of-market service or are tied to products from particular providers.