The Benefits Of A Pension – Planning For The Future

Retirement may seem quite a way off – especially if you’re in your twenties or thirties, however, starting a pension plan early on can really help you reap the benefits.

The Point Of A Pension

It's really very straight-forward - inevitably you will come to a time in your 60s or 70s where you will want to stop working.

It's very rare that people choose to continue to work into their old age - which is why you may want to put some money aside for your retirement now.

Whilst the state pension gives you a small amount of money every week it's not really enough to give you a decent standard of living in retirement. In fact it's actually below the minimum wage.

Let's face facts - many people who retire plan on doing things they've always wanted to do - such as travelling or simply have more time for family - especially if you have (or at least are likely to have) grandchildren.

A personal pension is essentially a savings plan where you pay money in and it's invested on your behalf. When you retire, you should get back a pot of money to provide you with a comfortable income when you retire - it's as simple as that.

Inevitably you're going to have a few questions about pensions - we've attempted to answer a few of the most popular ones below:

When Should You Start?

It's really up to you when you start saving for your pension, however, it's worth bearing in mind that the earlier you start - the more you are likely to get out of it at the end. For many people pensions start becoming more urgent when they hit their 30s as, by this time, they normally have bills for mortgages, cars, utilities and family to worry about. Essentially you want to ensure you can continue to pay for the essential bills and maintain a comfortable standard of living when you retire.

How Much Should You Invest?

That is really down to you and your personal circumstances. Basically you should never invest more than you can afford. You need to ask yourself what your current monthly expenditure is and how much is left over at the end of the month. From this you should be able to realistically work out what is feasible for you.

By and large it is recommended that you put away as much as you can - as a rule many people simply increase their contributions as their pay increases.

How Does A Personal Pension Affect Your State One?

Currently a personal pension will not affect your entitlement to a state pension.

So what are the Key benefits of a pension? Let's take a look:

Free Growth - The money in your pension will grow virtually tax free - boosting the amount going into the pot. It's worth bearing in mind though that the value of the pension can go down as well as up and you may not get back your original investment.

  1. Tax Relief - believe it or not this is where the taxman is essentially your best friend as they will help increase your fund by providing tax relief - but this is subject to certain limits.

  2. Employer Contributions - with a company pension your employer pays into your pension, increasing the amount going into your fund. In many instances they will match your contributions and in some cases - even pay more.

  3. Tax Free Growth - The money in your pension will grow virtually tax free - boosting the amount going into the pot. It's worth bearing in mind though that the value of the pension can go down as well as up and you may not get back your original investment.

  4. Control Your Investments - by saving in a pension plan you are in a position to put your cash in a range of investments, including the stock market, commercial property, bonds and funds. Bear-in-mind though - the range of investments available to you will depend on the scheme.

  5. Access Tax Free Cash When You Retire - did you know that when you take your benefits you could have the option of taking up to 25% of the fund you've built up completely tax free? Again - this does depend on the plan as well as age and the tax rules at the time you take your benefits. The remaining 75% must be taken as income and will be taxed as normal.

To ensure you get the most out of your pension it is usually advisable to start saving early on. To find out more about which pension scheme is the right one for you we recommend talking to one of our specialist financial advisers.

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