As part of Pensions Awareness, we’ve prepared this special guide to pensions – and why you need to look at your pension plans now.
We always try to do tomorrow what we should’ve done today.
This is not a problem if we put off cleaning the car or buying shoes. But when it comes to money, delay can be costly.
And some of the biggest costs of all come in if you delay your pension, or think that you can just make arrangements and forget about it all.
Not thinking about your pension now could mean no pension to think about - or at least, not nearly enough - when the time comes that you need it.
At Continuum, we are looking at what you need to do about your pension, whatever life stage you have reached, and why you absolutely need to do it today.
Do you need to arrange a pension?
You can’t – or at least, probably won’t want to - go on working forever. A pension provides the income you will need to live on once you retire.
If you are going to look forward to a comfortable old age, you need to build a reserve of cash – a pension pot – while you are working to provide the pension income you need when you stop.
There probably will be a state pension when you reach state retirement age, but it probably will not be anything like enough for a comfortable standard of living.
If you are an employee, you will be in a work pension scheme. These can be good value, as most employers contribute to your pension fund alongside you. But again, they may not provide the level of pension you actually need.
For that, you probably need a private pension. There are several types, but what they all have in common is the more you pay in, the better off you should be when you retire.
Think of a pension as an investment in your future – and it could be the best investment you ever make, thanks to some generous help from the taxman.
The taxman is on your side
The government likes to encourage you to save for your future. This encouragement comes in the form of tax relief.
Tax relief is paid on your pension contributions at the highest rate of income tax you pay. So:
- Basic-rate taxpayers get 20% tax relief
- Higher-rate taxpayers can claim 40% tax relief
- Additional-rate taxpayers can claim 45% tax relief
In Scotland, income tax is banded differently, and pension tax relief is applied in a slightly different way.
Tax relief sounds complicated. But what it actually means is that a basic rate taxpayer only has to pay £80 to pay £100 into their pension. It’s even better for higher-rate (40%) and additional-rate (45%) taxpayers. That £100 pension boost only costs £60 and £55 respectively.
What this means is that your pension could be the best investment you ever make, because it multiplies your money as soon as you put it in.
But this is only the beginning. The money you and the taxman pay into your pension does not just sit in a vault. It is invested for you. With years of potential investment growth and the rewards of compound interest, your pension pot could grow to be many times the amount you put in.
The kind of performance you can enjoy from a pension makes it a must for almost everyone. If you haven’t arranged one, you are missing out now and in the future. But even if you already have a arranged a pension, it is simply too important to your future to let it run by itself.
Whether you are yet to start building a pension, have a plan in place or are ready to start claiming it, you need to get independent expert advice today.
We’ll explain why.
For those yet to start a pension
If you have only just entered the world of work, you might think you can wait until you set up a pension. After all, you have plenty of other demands on your cash right now.
This is an expensive mistake. Time is your greatest asset when saving for retirement. The sooner you start contributing to a pension, the more time your money has to grow through reinvestment and compound interest. Even small contributions in your early working years can add up significantly over time.
Your pension could help you pay less tax now and look forward to a wealthy old age. It could even help you retire early. If you have a large enough pension pot, you could retire as early as 57 under current rules.
What to do:
Contact us at Continuum to discuss setting up a pension. We can explain the options So for example you could simply make a regular payment under £100 a week and leave it to an investment expert to get your contributions growing. Or you could choose how your money is invested, and even take complete control with a SIPPs or Self-Invested Pension Plan.
There is a lot to consider, and there are many pension providers. You need to be certain that you are planning your future with the one that is the most appropriate for you.
We can find the providers offering the most suitable plans for you, and help you set up everything you need, including informing the taxman and getting him to start saving with you.
Call us today – because every day you don’t have a pension means potential growth and money wasted
For those who have a pension in place
If you are already paying into your pension plan you might think you have nothing more to do. But there are two reasons why you need to check that it is on target.
The first is the fact that your pension pot is not actually a simple savings plan. It is an investment – and like all investments it can go down as well as up.
The skills of your investment manager, the steady money-making miracle of compound interest over decades – and the power of the stock market - should ensure that your pension fund is worth several times what you put into it over the years.
But sometimes things go wrong. You need to keep an eye on the performance of your pension, and make sure it is enjoying the kind of growth you want.
The second reason to check your pension plan is to ensure the target you set is still adequate.
Even if your pension pot is growing to target, you might want to boost it. Inflation has meant that many people need to increase the size of their pot to fund the level of income they need in retirement.
What to do:
Contact us at Continuum for a pension review. We can look at your current pension plans, check the performance, and prepare an illustration of the kind of retirement income you can expect.
If it falls short of what you need, we can help you find ways to boost it. It might not even be necessary to increase your contributions, because we may be able to suggest more effective ways to use them.
We can set benchmarks for your pension pot and find providers who can balance growth and risk to give you the best prospect for achieving the performance you need.
Call us today – you need to be certain your money is growing as it should.
For those ready to claim their pension
It used to be that the insurance or pension company that helped you build up your pension pot would simply take it and in return provide you with an annuity, and income fixed for life. How much you received would depend on the size of your pot.
But annuities are no longer the only option. You can take out some or all of your pension as cash (which may not be wise for most people). You can also keep your pension pot invested, and use pension drawdown, also known as income drawdown or flexible drawdown, taking cash as you need it. If you are planning on using drawdown, you must be sure the amount you’re drawing is sustainable in the long run and that the remainder is invested to grow to keep pace with inflation.
You need to be certain that your pension will last you the rest of your retirement, which could easily be 30 years long – and be enough to pay for care, if you should need it,
What to do:
Contact us at Continuum to discuss how you will use your pension. We can look at the options with you, and help you work out the best strategy for your particular circumstances. Many of our clients may use a combination of cash withdrawals, drawdown and annuity to optimise their retirement income. Then we can help you shop around for the most appropriate annuity provider or the most appropriate investments to use in drawdown.
It can mean making the wealth you have built up in your pension pot work very much harder – and help you enjoy the kind of retirement you want, even if its contents fall a little short.
Call us today – to get the retirement you want
Whatever pension stage you have reached, the chances are that we can help you make your money work harder.
This is because we are independent. We are not tied to any pension providers, so we can give you advice that is unbiased and focussed on your needs.
Calling us means getting an expert working for you to make your pension more rewarding. So for a more comfortable future, call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates at the time benefits are taken.
The value of your pension can go down as well as up and you may not get back the full amount invested.
Levels and bases of and relief from taxation are subject to change and their value depends on the individual circumstances of the investor. We recommend that the investor seeks professional advice on personal taxation matters.
The Financial Conduct Authority does not regulate taxation advice.
