Saving up for your retirement is of the utmost importance because unfortunately but unavoidably, the government pension plan is not enough for most people to live comfortably on.
There has been enough press coverage on Pensions recently to make even the most financially savvy amongst us glaze over. When I talk to people about Pensions I’m faced with, “Why would you do a Pension?”, “My friend said Pensions are rubbish!” and “I’ll do it when I’m older”.
Simply, there is a lot of misunderstanding on the subject. However, this short article should dispel some of the mysteries surrounding this tricky subject. Some of the benefits of Pensions include:
- If you are a taxpayer, when you contribute into a Pension, the government contribute too! Therefore, for a basic rate taxpayer, £80 into a Pension is automatically grossed up to £100.
- Your funds grow in a tax favourable environment.
- You can draw on your Pension from age 55 usually taking 25% of the Pension pot as a tax free lump sum.
- You can potentially draw on a Pension whilst you are still working.
- You can then use the remaining funds to buy what is called an ‘annuity’ (which will pay you a regular income for the rest of your life.)
There are a lot of other points to cover on Pensions and it is a very wide subject. Therefore it pays to have an expert on side.
Whilst there are obviously other saving options for individuals looking to put money away for their future the questions are: have you thought about your retirement plans? Or can you afford not to?
Please note – all points covered regarding tax rates, pension age and entitlement to tax free lump sum are correct as at 03.03.14