Why do I need a pension?
You probably don’t want to work forever. That means you’ll probably need an income in retirement. One way of securing a retirement income is through a pension. Don't worry though, they’re not as scary as they might seem. Pensions are simply long-term savings plans – a way to keep the cash coming in when you stop work.
Most people in the UK will get the State Pension when they retire – a regular payment from the Government. You qualify for this through the National Insurance contributions you pay from your wages whilst you work. But the State Pension payment could be a lot less than you think. You can take a look at how much you could get with the State Pension calculator(Opens new window).
Saving for your retirement
Many people think the State Pension on its own isn’t enough to do the things they want to do when they stop work. A way to plug the gap is to start a private pension arrangement that tops up the cash from the State Pension.
You may do this through a workplace pension. If you have a job, you probably already have a workplace pension – or, thanks to automatic enrolment rules, you’ll soon be asked to join one. That means your employer arranges a pension for you and you may save some of your wages into it. Your employer will also add some cash to the pot to help you save.
Whether or not you join a workplace pension scheme, you may also have your own private pension, sometimes known as a personal pension.
Any pension contributions you make benefit from tax relief. For example, for every £80 you save into a personal pension, the tax man hands over £20, meaning £100 goes into your pension fund. If you’re a higher or additional rate tax payer you can make a claim for extra tax relief. This could make a massive difference to your pension savings.
Your pension explained
Choosing a pension
So how to choose a pension? They come in all shapes and sizes, so it’s important to work out what’s right for you. You can set one up yourself, you can talk to our team of experts for some guidance or you can contact an Independent Financial Advisor to get some advice.
It’s generally never too early or late to start a pension. How old you are when you start saving can determine how much you need to put aside. For example, if you still have a long time to go until you retire, you’ll have longer to save and your money will have longer to grow. But if you’re already quite close to retirement, it’s probably a good idea to save a bit more.
As your life progresses, it’s a good idea to regularly review your pension plan. Say you get a promotion or a new job – why not consider adding any extra cash into your pension pot? Saving a bit extra now will pay off in the long run.
What does my pension provider do with my money?
They invest it on your behalf. There’s usually a small charge to pay – always check the small print. In return, they look after your investment and contact you (usually once a year) to let you know how your money is doing.
What about ISAs?
Individual Savings Accounts – or ISAs – are another way of saving for retirement. They’re also tax-efficient – you don’t pay tax on any interest you earn – so they’re another great option. But when it comes to saving for your retirement, it’s not an either/or situation. You can choose to save into any pension product, an ISA, or a combination of both. So, what are you waiting for?