I’ve boosted my pension by £8,000 a year with a simple side-hustle – how to make the most of your retirement income

PENSIONERS could lose out on up to £20,000 in retirement by failing to shop around for the best income options.

That’s the difference over a 25-year retirement between the highest and lowest rates for someone with a £100,000 pot — which is around the average fund for a 65-year-old with pension savings.

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If you’ve got less in savings or you’re relying on the state pension alone, getting the best income you can is even more important as living costs soar.

Harriet Meyer looks at how to navigate the maze . . . 

RETIREMENT RIDDLE

WHEN you turn 55 (or 57 from 2028), you’re allowed to start taking money out of your pension.

You can normally take up to 25 per cent as a tax-free lump sum.

But if you don’t need the money urgently or you’re still working it might be better to wait.

In order to turn your savings pot into a pension income you’ve got two main options:

The first is to buy what’s called an annuity, which guarantees you an annual income for life.

The second is to keep your pension pot invested and take income as and when you need it through something known as a drawdown plan.

You might also decide to mix and match.

To help understand the options, over-50s can book a free appointment with the Government’s Pension Wise service (0800 138 3944, moneyhelper.org.uk).

If you’re lucky enough to be part of a final salary pension scheme, for example if you worked for the NHS or in another public-sector job, you don’t need to buy an annuity or drawdown plan.

Instead, you’ll be paid an income based on what you earned and how many years you worked.

Fewer and fewer employers offer these pensions, which are also known as defined benefit schemes, leaving many to face difficult decisions about how to make their savings stretch.

WEIGHING UP THE OPTIONS

THERE are pros and cons to both annuities and drawdown.

A decade ago most retirees without final salary pensions were forced to buy an annuity.

But since the rules changed in 2015, the vast majority are now choosing drawdown.

It offers more flexibility over how much you take out and when, but if the stock market plummets your pot could fall in value, leaving you with less income.

You could also run out of money if you take too much too soon.

With an annuity you have certainty about your future income but what you get depends on where rates stand when you buy your policy, so timing is important.

Rates are much higher than they were a year ago, but they’ve come down in recent months.

Last April, a 65-year-old with a £100,000 pot could buy an annuity of £5,570 per year but if they had waited until October they could have got as much as £7,500.

This week with the same pot they could buy an income of £6,800 a year, according to figures from pension and investment firm Hargreaves Lansdown.

GETTING THE BEST ANNUITY

BEFORE choosing an annuity you should look at all providers on the market, don’t just stick with the one you used when saving into your pension.

The difference between the best and worst quotes currently amounts to around £800 a year.

Declaring health conditions and whether you smoke also has a huge impact on how much you can get.

If the same 65-year-old with a £100,000 pension was a smoker their income would jump from £6,800 to £7,560 a year due to lower life expectancy.

Or if they had suffered a stroke in the past it would be £8,330, according to Hargreaves Lansdown.

You can use the tool on its website or on moneyhelper.org.uk to compare rates.

DRAWDOWN DILEMMAS

WITH drawdown how much income you have to last your retirement depends on the investments you’ve chosen and how they perform.

You’ll also need to carefully calculate how much to withdraw at a time to ensure you leave enough.

The stakes are extremely high so it’s wise to get independent financial advice.

You can search for an adviser at unbiased.co.uk or vouchedfor.co.uk.

MAX YOUR STATE PENSION

YOU can claim your state pension from age 66 (rising to 67 by 2028).

You need 35 years’ worth of National Insurance contributions to claim the full basic state pension of £204 per week.

Check your record at gov.uk/check-national- insurance-record.

You have until July 31 to plug gaps between the 2006 and 2016 tax years.

After that, you can only go back six years.

It costs about £824 to plug a missing year, which boosts your pension by around £300 a year.

The Government boosts your payments by one per cent for every nine weeks that you delay taking your pension.

A year’s delay could increase your annual income by £542 or 5.8 per cent for the rest of your life.

Call the Government’s Future Pension Centre on 0800 731 0175 if you’ve yet to reach state pension age, or the Pension Service on 0800 731 0469 if you’re retired.

Three’s not the charm

MILLIONS of mobile customers could save more than £200 a year by ditching big firms, according to Which?.

Customers with EE, Three, O2 and Vodafone could make substantial savings by switching when their contract ends.

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It comes after a raft of price hikes which have seen  bills rise by up to 17 per cent.

A survey by Which? found EE customers whose deal has ended pay an average £23.80 a month.

By switching to a sim-only low data deal with Smarty, which runs off the Three network, they could cut their bill to £5 a month.

The deal offers 4GB of data and unlimited calls and texts. Vodafone customers could save £206 a year by switching to Smarty’s deal.

O2 and Three customers on variable tariffs could save almost £200 a year.

EE and Vodafone said they contact customers near the end of their contracts with their latest deals.

EE said customers get a ten per cent discount when they’re out of contract for three months.

Vodafone pointed to its Very Me reward scheme.

Virgin Media O2 said its contracts automatically reduce bills when handsets are paid off and highlighted its O2 Priority discounts and free EU roaming.

Three declined to comment.

This post first appeared on thesun.co.uk