A new year represents a great opportunity for a “reset” with your finances, putting yourself in a fresh mindset to focus on your long-term goals. In particular, the start of 2025 could be an ideal time to recommit to your pension.

Below, our Carlilse financial planners offer tips to maximise your retirement planning in the New Year. We hope these insights are helpful. Please get in touch to discuss your own pension plan with a financial adviser here at Vesta Wealth.

 

#1 Optimise Your State Pension

The State Pension continues to be a great deal. In 2024-25, not only does the full new State Pension offer £221.20 a week, but the income rises each year by at least 2.5% under the “triple lock system” – helping to ensure you retain (and even build) your spending power.

To get the full new State Pension, an individual needs at least 35 “qualifying years” on their National Insurance (NI) record. You can check your record on the government’s website for free.

As you enter 2025, how is your record looking? Perhaps you need a few more years to finish it. Speak with a financial adviser to explore your options – e.g. whether voluntary NI contributions are suitable for your situation and goals.

 

#2 Review Your Asset Allocation

How are your pension “pots” performing (defined contribution pensions – both private schemes and from your workplace)?

It is wise to check your portfolio at least once a year with a financial adviser. This is not to try and “time the market”, but to ensure your asset allocation still reflects your chosen strategy.

For instance, if you chose a 50:50 split of equities to bonds with your adviser, is this balance still reflected in your asset allocation? Due to differences in performance, the balance might have veered off course. If you originally invested in a higher-risk investment strategy, it may be wise to review these investments if you are nearing retirement.

A financial adviser can help you re-balance things appropriately and to select investments at a level of risk in line with your objectives.

 

#3 Check Your Contributions

If you are still building up your pension for retirement, check whether your contributions are still optimised to help you reach your goal.

In 2024-25, an individual can contribute a maximum of £60,000 to their pensions each tax year and enjoy tax relief (or, 100% of their earnings – whichever is lower). This is assuming no “carry forward” is used and the Money Purchase Annual Allowance (MPAA) has not been triggered.

For some individuals, the start of 2025 might be a good opportunity to increase their monthly contributions. Others may already be on the right track. Speak with an adviser to be sure.

 

#4 Check Your Withdrawals

If you are already taking income from your pension(s), have you checked whether you are still within your “safe withdrawal rate” – i.e. the monthly amount you can take without compromising the sustainability of your pension?

Many articles (particularly US-based ones) suggest keeping to the 4% Rule, which proposes taking a maximum of 4% from pensions each year (inflation-adjusted). However, this system does not always work for every individual.

Moreover, pension performance can affect your safe withdrawal rate. During a “bad” year in the markets (e.g. March 2020, when COVID-19 struck global equities), it may be appropriate to cut back on discretionary spending until markets “bounce back”.

Again, speak with a financial adviser if you want to check your safe withdrawal rate in 2025.

 

#5 Monitor taxes

The recent Autumn Statement in 2024 brought some important tax changes for pensions. For instance, as of April 2027, it is planned that pensions will be regarded as part of an individual’s estate for IHT (inheritance tax) purposes. This is likely to require many clients to adjust their financial plans if it is introduced. This policy remains at a consultation stage however and could potentially change.

More immediately, how is your pension optimised for income tax? With the Personal Allowance frozen at £12,570 until 2028, many individuals could see more of their pension income brought into higher tax bands – especially if the State Pension continues to rise each year.

A financial adviser can help you manage your income so you are not paying needlessly high taxes on your pension(s). For instance, the 25% tax-free lump sum can sometimes be used to mitigate income taxes – e.g. using it gradually to provide a regular income.

Another option might be to take a higher percentage of your income from ISAs if your pension income is nearing a higher tax bracket for the financial year. ISA withdrawals are not regarded as earnings by HMRC. Moreover, there is no “cap” on how much you can take out (although clients should seek advice to ensure a safe withdrawal rate for their ISAs, too).

We hope this content has helped you discern how to maximise your pension strategy in 2025. To discuss your own financial plan, please get in touch to arrange a free, no-commitment consultation with an adviser here in Cumbria.

This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.

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