When Andy Haldane, the Bank of England’s Chief Economist, said, “I consider myself financially literate – yet I confess to not being able to make the remotest sense of pensions”, he spoke for many.
Fortunately, as financial planners we have an in-depth understanding of pensions, and each year help scores of people plan for a financially comfortable retirement.
Pension plans come in various forms to suit the needs of different types of worker, from the basic state pension to self-invested personal pensions (SIPPs), personal or private pensions, and workplace pensions schemes, to name but a few.
Here are some simple but compelling reasons why you should think about pension planning now:
Tax relief. If you make contributions to a pension, or if your employer deducts your payments from your salary, you automatically get 20 per cent tax relief as an additional deposit into your pension pot. If you are a higher-rate taxpayer, you can claim an extra 20 per cent, while those paying additional-rate tax can claim back an extra 25 per cent.
Compound interest. The sooner you start your pension, the longer your money will have to grow. In today’s climate of low interest rates, compound interest can play an important part in investment growth.
The state pension is just a safety net. The flat-rate state pension amounts to around £8,000 a year. Plus, by 2028, the age at which you can claim it will have risen to 67.
A workplace pension is equivalent to getting a pay rise. If you save into a workplace pension, your employer should match some or all of your contributions, providing a welcome boost to your pension.
You get a quarter back, tax free. When you retire, you can take 25 per cent of your savings as a tax-free lump sum.
Consolidation: Recent Pension Freedoms legislation has revolutionised how benefits may be taken. If you have older or stagnant policies they may not offer the flexibility of modern plans and may still bear historically-high levels of policy fees. Consolidating these into a modern plan could be highly beneficial; we will be happy to advise.
So, if you’re self-employed, an employee, work part-time, run your own business or have accumulated pension pots with past employers, we can offer you advice. After all, retirement should be an enjoyable and fulfilling stage of life, not a time spent worrying about money.