Which? uses cookies to improve our sites and by continuing you agree to our cookies policy

5 ways to build a better pension

How to maximise your retirement income

Starting a pension early will pay off when you come to retire.

A recent report found that only half the workforce was making adequate provision for their retirement. The rest faced a pension shortfall, with less retirement income than they would need to maintain a reasonable lifestyle. 

One fifth of those surveyed were making no pension savings at all. By taking a few simple steps, it is possible to maximise your pension income however.  

1) Join a company pension scheme

If your employer runs a company pension scheme, it is normally well worth joining it. A defined benefit (DB) scheme is especially beneficial, but these are now rare in the private sector. A money purchase (or defined contribution) pension scheme is more likely to be offered to young employees. 

This takes the contributions you make each month and invests them, together with a contribution made on your behalf by your employer. The money accumulates in a personal ‘pension pot’ that you use to generate retirement income. 

If you don’t join your company scheme, you get no employer contribution and are effectively turning down extra pay. See the video below for more on company pensions. 


Please enable JavaScript to access this content.


2) Start saving in a pension while you’re young   

Although young people often struggle to put money aside for a pension, and have other demands, such as student loan repayments, mortgage payments and childcare costs, paying into a pension early can pay dividends in the long run. 

Compound growth means that their pension pot grows far faster than those who start saving later, and even modest contributions can grow into a significant amount. 

3) Boost your pension pot before you retire

If you are concerned that your projected retirement income is inadequate, it may be worth making extra payments into your pension pot. Most pension schemes allow you to make additional voluntary contributions (AVCs). 

These can allow late starters to catch up before they retire, or make it possible to retire early. Check with your scheme administrator for details.

4) Make sure you get full state pension

Basic state pension is currently £102.15 per week. To get this you need to have made a minimum number of National Insurance contributions during your working career. From 2010 the number of ‘qualifying years’ has been 30 for both men and women. For those who reached state pension age before then, the requirement was 39 years for women and 44 for men. 

If there is a shortfall in the number of years you have been credited with you may receive less than the full amount. It is possible to buy ‘extra years’ before you retire, however, and make sure you get a full state pension. This is less necessary than it used to be, but women in particular may benefit by topping up their state pension entitlement in this way. 

Although it is possible for spouses and civil partners to get a state pension as a result of their partner’s contributions, this is only £61.20 per week, giving a joint pension of £163.35. Couples who both qualify for full state pension in their own right will receive £204.30.  

5) Shop around for the best annuity

If you are in a defined contribution (DC) pension scheme, you will need to convert your accumulated pension pot into retirement income when you come to retire. Most people do this by buying an annuity

Rather than simply accepting the sum you are offered by your pension provider, you can shop around for a better rate on the open market (known as exercising the open market option or OMO). A specialist annuity bureau or IFA can help you track down the best rate and advise on the different types of annuity available. 

Once you have purchased an annuity it is impossible to switch, so it’s worth doing your homework first. This is particularly true for anyone in ill-health or with lifestyle factors that may justify an enhanced or impaired annuity

Providers estimate that as many as 50% of those retiring may qualify for an uplift of this kind. The increase can be anything up to 40%, depending on your medical prognosis.  

pound coins

Which? Money when you need it

You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.

Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.

Or for money-saving tips, and news of how what’s going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast

For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.

Back to top