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 are just starting out, or you’re getting closer to retirement, reviewing your pension could make a 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 accounts, investments or by buying property to rent out. The most common and most appropriate way for many people is through a pension plan.
Pension plans have a number of advantages over other ways to save for retirement:
- If you pay into a workplace pension, your employer will usually contribute. If you pay only at the basic level you might consider paying a little more. Sometimes employers will pay more if you do. Bear in mind that under the auto enrolment process, the lowest contribution levels are planned to increase anyway. If you are self employed, then you will have to make your own pension arrangements.
- 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 subject to the higher of your earned income or your annual allowance. For every £80 you contribute into a pension, you’ll automatically see another £20 go into your pension pot.
- If you pay income tax at the higher or additional rate, then you should be able to claim additional tax relief on your own pension contributions. This is claimed through your income tax return. Alternatively, if your employer allows you to pay into your pension through salary sacrifice, this can be a very tax efficient way for you to increase your overall pension contributions.
The importance of starting early
The sooner you start saving for your retirement, the more you could 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 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.