In this blog, we’re turning to experts S & K Berry Associates Ltd to find out the importance of pensions…
It goes without saying that most people of working age should be investing into a pension. Our life expectancy is rising, and the government backed State Pension unfortunately will not give many enough income to cover their basic needs in retirement. Currently, for most employees it is mandatory to have a pension through your workplace. However, not many of us know the benefits or understand all of the options available.
Why should I invest into a pension?
At the time of writing, pensions are one of the most tax efficient ways of saving within the UK. The government immediately reimburses 20% income tax if contributions come from your own pocket, (with those in the higher rates being able to claim more). Contributions may also be made by your employer which receive similar tax rebates. Any growth made within a pension is tax free and when you choose to take your pension, it is possible to take a 25% lump sum of your fund, free of tax.
When should I start saving?
Based on past performance, those who have been in the market for the longest are likely to see the best overall returns. Investing in a pension from a young age is very important to maximise your potential for growth. That being said, it is never too late to start saving for retirement.
How much should I save?
Saving for your retirement is incredibly important. You will be dependent upon the assets you own at the time of retirement, so if you haven’t saved enough you may find yourself in a difficult situation. The full state pension is currently £175.20 per week or £9,110.40 per annum. This alone may not provide the type of retirement you envisage.
Using an example from the Pensions and Lifetime Savings Association (PLSA), a single person would need £10,200 per annum to provide the minimum* living standard. If you aspire to have a more comfortable lifestyle, the amount suggested by the PLSA would be more to the value of £33,000 per annum.
Whilst everyone enjoys the idea of a ‘comfortable’ retirement, to achieve this you would need a pension fund of £500,000. The message is clear. If you could save more, it may be wise to do so.
*Minimum living standards would be basic needs plus enough for some discretionary spending, such as on social occasions.
How can I access my pension?
There are various ways to access your pension when the time comes. Since 2015, the increased flexibility when taking benefits allows people to tailor how they withdraw their funds to meet their lifestyle. Due to the complexity of this area, it may be beneficial for anyone thinking of entering retirement to contact a Financial Adviser.
What else can I use my pension for?
The primary purpose of a pension is to fund your retirement. However, there are other possible uses for this pot of money. Due to the way a pension is structured, it can be used to mitigate Inheritance Tax, however for this area of planning it would be worth discussing this with a professional due to its complex nature.
S & K Berry Associates Ltd work in partnership with We Are Wellbeing. It is their objective to provide Financial Wellbeing and holistic advice to ensure long-term financial objectives can be met. They do this through online seminars and offering the opportunity to speak one-on-one with a qualified Financial Adviser.
For more information about We Are Wellbeing’s range of services and our partners, please get in touch.