What do you think of when someone talks about pensions? Probably not a lot as most people think pensions are something that need to be worried about just before you retire. In fact in the UK less than half of the working population are saving for retirement.
Whilst pensions are most important when you are coming to retirement age, they aren’t something you should leave until the last minute to think about. The more thought you can give your pension now, the more benefit you will get from it in the future.
What’s a personal pension?
A personal pension is simply a long-term tax-efficient way for you to save for your retirement.
You may be entitled to a workplace pension arranged by your employer or if you don’t have access to a workplace pension for some reason, for example if you’re self-employed, then you can have your own personal pension.
How do they work?
Think of a pension like a savings bank account, on which you earn interest except that you can’t touch any of it until you are near your retirement age.
You’ll be required to make payments into your pension pot, and these can be one-off payments or regular monthly payments. The money you have contributed is then invested by your pension provider, with the aim of your pot growing quicker than inflation.
If you are enrolled in a workplace pension, your contribution will be taken from your salary each month. This will then be topped up by your employer. The rate at which these deductions are made will have been discussed with you beforehand.
The money that you contribute into your pension pot also gets an additional boost from the Government by way of tax relief.
Why should you have one?
With average life expectancy on the increase, there may not be enough money for the Government funded state pension to support everyone comfortably when they retire.
A personal or workplace pension is your way to increase the level of income above your state pension entitlement that you have access to when you retire.
Making a pension contribution now can seem like a large, and perhaps unnecessary expense when you have other priorities, but the sooner you start contributing, the larger your pension pot will be in the future. And don’t forget that your employer and the Government could be adding to your pot as well – which won’t be the case with any other form of savings.
Pensions can be complicated but if you have any queries regarding the workplace pension your employers will be able to help and The Pension Regulator’s website also has a load of information to hand. The Money Advice Service is also a good place to start if looking for some more advice.
Don’t put it off until it’s too late. Start your pension pot as soon as possible.