Pensions explained

Retirement should be your chance to do all the things you've been looking forward to throughout your working life. But to make the most of your time, you need to have some financial plans in place. For most people, this means putting money aside in a pension.

Why save into a pension?

If you're a member of a workplace pension, in most cases, when you pay in, your employer also makes a contribution. This is then topped up with tax relief from the government. Your pension pot can be invested in a range of funds which invest in assets that can go up and down in value, like shares, bonds and property, with the goal of growing the value of your pension (gross) savings over the long term.

Over time, saving regularly can mount up. If you started paying £150 a month into a pension when you were 20 and your fund grew by 5% a year (and didn't go down in value), then by the time you were 65, your pension pot could be worth around £300,000. (These figures are very much an example and not a guarantee, because the value of your pension can go down as well as up.)

Most people feel it's important to have their own savings for retirement and not rely on the State Pension. The State Pension age is rising - it's currently 65 for men and will reach 65 for women by November 2018. It will rise to 67 for both men and women by October 2028, before climbing further in future years.

What to think about as you approach retirement

As you approach your chosen retirement age, you should think about what you want to achieve in retirement. How might you be able to afford the kind of lifestyle you would like?

If you've not done so already, review your current financial situation. Look at how much you've saved, how much you can contribute each month and what kind of income this could give you in retirement.

If you have a defined contribution pension, at Skipton we can review where and how it is invested, regardless of who it is held with. By arranging to meet your nearest Skipton financial adviser, you can receive personalised recommendations towards achieving your retirement goals, with no pressure to act.

Your retirement income options

When you retire, there are different solutions to your income needs. You could choose to turn your pension fund into a retirement income by buying a lifetime annuity, which could guarantee to pay you an income for life. You could also consider alternative options, like keeping your pension invested and making withdrawals, or you could instead take an income from any other investments you have. But, both could see the value of your pensions and investments, and the income you take from them, going down in value. Also, if you take too much income too quickly the value of your funds could become depleted or run out altogether. There's a lot to consider.

New rules were introduced in April 2015 that mean you can withdraw all of your defined contribution pension in one go. Although the first 25% is still tax-free, income tax is payable on the remaining 75%. Seeking advice is important though, because if you withdraw too much too soon you'll pay a higher rate of tax, as it's treated as income or you could run out of money in retirement. 

Making sure you have made the right decisions that are appropriate for your own circumstances and retirement aspirations is important. At Skipton our financial advisers will help you reach an informed decision as to whether investing will suit your retirement plans.

For some retirement income solutions, your capital is at risk so you may get back less than you originally invested. The value of investments and the income from them may fall as well as rise. If you take too much income too quickly your fund could become depleted or run out altogether. The tax treatment of your investments depend on your individual circumstances and prevailing legislation, both of which may change in the future. There are a number of tax considerations for withdrawing your pension fund as a lump sum and you should seek financial advice before making any decisions.

Should we advise you to purchase an annuity, you should be aware that annuity rates depend on your individual circumstances such as age, health and lifestyle factors as well as the rates available at the time of purchase.

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