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10 essential tips to boost your retirement income

Retired households are reportedly £20 a week better off than those in work
Retired couple

Retired families now have higher incomes than those in work on average, according to new figures.

A report published by the Resolution Foundation earlier this week found that pensioner households are £20 a week better off than working age households, after housing costs have been paid.

It also highlights how retirement incomes have surged over the last 16 years, stating that pensioner households typically had to live on £70 a week less in 2001 than they do today.

Retirement incomes have been boosted by the state-pension triple lock, which guarantees the state pension will rise by the highest of 2.5%, average wage increases, or inflation.

Regardless of what stage of life you’re in, there’s plenty you can do to boost your retirement income. Here are our 10 top tips.

Find out more: pensions and retirement – our hub of retirement information

Before retirement

The best way to ensure you have enough money to live on in retirement is to start saving early.

The earlier you start saving, the more time your money has to grow, and the bigger your retirement fund will be as a result.

1. Sign up for your company pension scheme

If you’re an employee, take advantage of your company pension scheme. You’ll benefit from tax relief paid by the government and additional contributions from your employer. This is essentially free cash.

If you’re already in a pension scheme and aren’t putting away the maximum, think about whether you can afford to save more, especially if your employer will match larger contributions.

Find out more: what is a company pension? – learn how company pensions work

2. Cut your pension charges

Many people either forget or choose not to transfer their pension when changing jobs. As a result, it’s quite possible to have a trail of pension pots with different companies.

This can be damaging as it’s harder to track what you’re invested in, or the charges levied.

What’s more, some pension companies charge higher fees to ‘inactive’ members that are no longer making regular contributions, so it often pays to transfer funds to your ‘active’ pension.

Find out more: should I combine my pensions? we weigh up the pros and cons

At retirement

This is arguably the most important time to think about your pension. The decisions you make now will affect your income for the rest of your life.

3. Defer your state pension

If you’re of state pension age, but don’t need the money immediately, you could boost your income by waiting longer to start claiming it.

You don’t need to do anything to defer your state pension. The government assumes you are deferring, unless you actively claim it.

You’ll boost your state pension by an extra 1% each week for every nine weeks you put off claiming it, equivalent to 5.8% a year. The extra pension you claim will rise in line with the triple lock too.

However, you’ll need to think about whether this extra state pension is enough to make up for the weeks where you didn’t claim it.

Find out more: deferring your state pension – how this works in practice

4. Choose the best option for generating retirement income

Until quite recently, you’d have little option other than to buy an annuity when you reached retirement. This involves handing over your life savings to an annuity provider, in exchange for regular income until you die.

However, since the introduction of April 2015 pension freedoms, retirees have been given more choice over what to do with their pension.

Many people have chosen to use income drawdown, while others have withdrawn a tax-free lump sum from their pension pots.

Yet, for lots of people, buying an annuity can still be the right choice as it eliminates the risk of running out of money. If you do buy an annuity, it’s vital to shop around for the best rates.

Find out more: options for cashing in your pension – weigh up your options

5. Check if you are eligible for an enhanced annuity

If you have health issues, you may qualify for a higher income from an annuity, potentially by up to 50%.

Insurers set annuity rates based on how long they think you’ll live, so if you’re a smoker or have had health problems in the past, there’s a good chance you’ll be offered a better rate.

You don’t need to be seriously ill for a higher annuity rate, so it can really pay to check.

Find out more: enhanced annuities – discover how these work

6. Check your existing pension for a guaranteed rate

Many pension policies sold in or before the 1990s had clauses that guaranteed minimum annuity rates of 10% or more. This is far more generous than you’ll be able to find today.

Before cashing in your pension, or considering a drawdown policy, check your paperwork to see if there’s a guaranteed annuity rate lurking in the small print. If there is, it could be your golden ticket to a more comfortable retirement.

Find out more: What is an annuity? – everything you need to know

In retirement

If you’re already in retirement, there are other ways to boost your income.

7. Take a lodger

Under the rent-a-room scheme, homeowners can earn up to £7,500 a year tax-free by letting out a room in their home. If you’re a couple, you can claim half the tax-free allowance each.

It only applies to people renting furnished space inside their main residence – you won’t get the allowance if you split your house into two flats and let the other one out.

In theory, the allowance is available to renters as well as homeowners, but if you’re sub-letting, you’ll need your landlord’s permission.

You’re allowed to claim the allowance if you run your home as a bed and breakfast too.

Find out more: letting out a room in your house – see our guide for more info

8. Rent out other assets

The rise of the ‘sharing economy’ has made it far easier to make extra cash by letting out anything from parking spaces to pets.

From April 2017, a new personal tax allowance will allow people to receive up to £1,000 tax-free from letting out property or land. It can also be claimed by people who offer their homes as short term accommodation through the likes of Airbnb.

9. Start an online business

Another personal tax allowance being introduced this April will allow people to earn up to £1,000 tax-free by trading online.

If you fancy yourself as a bargain-spotter, you could try your hand at making extra cash by trading items on eBay.

10. Stay in work

According to the Office of National Statistics, over 1.2 million over-65s were in work in November 2016, some 5% more than the previous year.

Some carry on their existing jobs, while others cut down their hours and go part-time, or even switch jobs completely.

If you work past state pension age, you won’t pay National insurance any more. For those earning between £8,600 and £45,000, that means an extra 12p for every pound they earn.

Find out more: working in retirement – our guide to working beyond state pension age