I am beginning to save for the future, I know my pension savings are important, but there seem to be so many things to consider
Lifetime savings, making a start
Starting out and building-up your pension savings can be complex, as there are many things to consider and various paths to follow. Options and terms, such as Auto Enrolment, Stakeholder, Group Personal Pensions, Defined Benefit and Personal Pension Plans are alien to many, but not to us, as this is what we do.
We can help take away much of the pain when making choices about what to join, what to do with ex-employer plans and how to maximise your existing savings by providing you with a simple recommendation.
At All About Pensions we believe the sooner you engage with what you want from your pension savings, the more secure your future financial well-being will be. We will set out and provide clear, concise guidance on starting the journey.
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Sean had worked for a number of companies during his 30 year career and now at the age of 50 wanted to consolidate a number of former employer and personal pension schemes into one plan that he could manage himself.
We obtained the information for these plans, which highlighted some features we thought that he may want to retain, such as a Guaranteed Annuity Rate and after consultation we merged the plans. Now, rather than six statements a year he gets one and feels much more in control.
St Neots, Cambs
Beth had been working for five years and recently took the plunge to become a self-employed website designer. After leaving her employer and a generous pension scheme behind her, she contacted us to see what her options were. With our advice and guidance, Beth now has in place a low cost personal pension that she pays £200 a month into, which attracts tax relief at 20%.
As Beth had an adventurous attitude to taking risk, the investments we recommended had a high weighting in overseas equities that, whilst volatile, gave her a return of over 30% in the last two years.
Lizzie had never paid too much attention to (in her words), “the boring world of pensions”, until speaking to her newly retired father-in-law. He suggested that she was contributing too little to her work place pension and that being a 40% tax payer that she was missing out on higher rate tax relief.
We were able to supply Lizzie with a pension forecast and suggested an optimum amount that she should contribute to an additional low cost personal plan, together with designing a portfolio for her. She now feels that her pension savings are working much harder for her than they were.
Why should I save for a pension?
We are increasingly being told that the State benefits system is under pressure and that we have to take responsibility for our own financial future, especially as we are all living longer.
Saving for semi or full time retirement through a pension arrangement is not only tax efficient, but over the long term could mean the difference between enjoying your later life or merely just making ends meet.
What are the tax benefits?
If you make payments into your employer’s company scheme, it is likely that the money will be deducted from your pay before any Income Tax or National Insurance is taken. This could result in substantial savings, at the rate at which you pay tax, which may be 20%, 40% or 45%.
With personal pension arrangements, you will make contributions from income that has already been taxed and your pension provider will automatically credit you with a 20% uplift on your contribution. If you are a higher rate tax payer, then you will have to claim the additional 20% or 25% difference back through your annual self-assessment tax return.
How much can I contribute?
The actual amount that you can save in a tax year for tax relief purposes is the greater of a gross contribution of £3,600 or 100% of your earnings, subject to the annual maximum allowance of £40,000. There are rules that reduce the annual allowance for those earning over £150,000, referred to as Taper Relief, which an adviser will talk you through if you are affected by this.
Where do my contributions get invested?
This is probably the most important aspect of building-up your savings in retirement as good investment management can make the difference between success and failure.
Most pension arrangements will provide you with a range of funds that you can invest in according to the level of risk that you want to take and time you have until wanting to take your benefits.
Some plans allow you to buy commercial property and individual shares, but for most people collective investment funds that invest in a wide range of UK and overseas equities normally is the right solution.
We feature carefully selected pensions guides from the pensions regulator and government departments below. For more clear, concise guidance and latest news please visit our blog