No matter what age you are, it’s a good idea to think about your pension arrangements, the kind of lifestyle you’d like in retirement, and what you can do to get there. Whether you or a family member is just starting out, or you’re getting closer to retirement, reviewing your pension can make a huge difference to your retirement plans.
Why save into a pension?
It’s important to have plans in place for retirement. The age at which you can claim the State Pension is increasing, and it might not be enough to fund the lifestyle you want when you retire.
People save for retirement in many different ways – through ISAs, bank or building society savings accounts, or by buying property to rent out. The most common and most appropriate way for many is through a pension.
Pensions have a number of advantages over other ways to save for retirement:
- When you pay into a workplace pension, your employer will also make a contribution. Many employers will also offer to match what you pay in, up to a certain level.
- Pensions are a very tax efficient way to save, thanks to the current tax relief on contributions. Basic rate taxpayers under the age of 75 get 20% tax relief on contributions up to the annual allowance. For every £80 you contribute into a pension, you’ll automatically see £100 go into your pension pot.
- If you are a higher or additional rate taxpayer, you can claim further tax relief via your tax return or salary sacrifice if your employer offers it.
The importance of starting early
The sooner you start saving for your retirement, the more you can expect to have to live on in later life.
For example, if you started a pension at age 20 and saved £150 a month – including your employer’s contribution and tax relief – your pension pot could be worth almost £300,000 by the time you reach 65, assuming your fund grew by 5% a year and didn’t go down in value at all.
If you waited until you were 40 to start saving the same £150 a month, this could result in a pension pot of just under £90,000. Delay until you’re 60 and your pot would be worth just over £10,000. Again, this assumes that your fund grows by 5% a year and doesn’t go down in value, but of course the value of the funds in your pension pot can go down as well as up and figures are for illustration purposes only.
If you have questions about planning for retirement, or wish to explore investment options, we can help. Your nearest Skipton financial adviser can review your current savings, investments and pensions, regardless of who they are held with, to see how they measure up to achieving your goals.
You’ll benefit from our in-depth research of the market. We’ll make personalised recommendations based on a range of suitable investments from our panel of providers. You’ll have as much time as you need to decide your next steps.