Most of the time, we’re understandably concerned mostly with paying our way in the present, but it’s also vital to plan for retirement. The state pension doesn’t go very far, so we need to have either a private pension or other savings to live on in our old age.
Pensions and Savings
The world of pensions has been shaken up in the past few years. The government’s auto-enrollment system, due to be complete in 2017, obliges all businesses to offer a pension scheme to their employees, paid for jointly by employee and employer.
A pension is essentially a long-term saving scheme which invests the funds on your behalf, but there are other ways of saving. At current interest rates, putting your money in a savings account is likely result in real-term depreciation, but there are schemes such as ISAs that offer a better return.
Some Tips on Pensions and Savings
- Have a pension. New government regulations make disasters like BHS unlikely in the future, and most pension schemes will give good returns on investment. If you enrol with a workplace pension, your employer will also be putting money in, and you get tax relief on your contributions.
- Find out what type of pension suits you. The most common types are a final salary pension, where you receive a defined percentage of your final salary for each year of service, or a money purchase pension, which can be either withdrawn or swapped for an annuity. There are other types — a self-invested personal pension, for instance, gives you complete control over how the funds are invested, but that’s best left to experienced investors.
- Pay in as much as you can afford. Particularly if you’re using a money purchase pension, the more you put in early on, the bigger the increase is likely to be in your investment. A good tip is to put a quarter of each pay rise into your pension fund.
- Consider salary sacrifice. This is a scheme used by some employers (who also benefit) where you give up a certain amount of your pre-tax salary, which the employer pays into your pension fund. This means you pay no tax or NI for that sum. However, it’s important to be sure how the salary decrease might affect you.
- Consider a lifetime ISA. A workplace pension is generally the best value for money, since your employer is also making contributions, but if you’re self-employed a Lifetime ISA offers more flexibility for accessing your money.
If you need to know more about your financial options, feel free to contact us.