About Pensions

Pensions

Not only for your retirement...

Pensions aren't only about having a plan or savings for the future; they also can be considered a pay rise! When you start a pension the Government will top it up for you and if you are in full time employment, your employer may HAVE to contribute money towards your pension as well. A pension quite simply is a pot of cash that you, the Government or your employer pay into. The taxman will not touch it and by contributing to it whilst working it ensures a much more secure future and retirement.

The right pension scheme will protect you in your old age, providing reassurance of a guaranteed income even once you have left full time employment.

Pensions aren't just for old people!

Obviously the purpose of a pension is to support you financially in retirement, but it also is a wise way to use your monthly income whilst young. Whether you are employed or self employed you can contribute to a pension and the taxman will not touch it. If your employer contributes to your pension, coupled with the tax you will receive back on your money, means that your total income will increase as cash is moved into your pension. Whilst you may not immediately feel that you are seeing that extra cash in your pocket, it will be adding up and maturing for your future retirement.

What is all this auto-enrolment talk on the News?

For many years companies had a choice as to whether they enroled their employees into a pension scheme. Bigger companies offered it by default so as to attract talented staff to their business. Very recently the Goverment has introduced new laws that will make it a legal requirement for all business to enrol their staff into a pension scheme. At the moment it is only large companies which fall under this law but it is fast changing and within the forthcoming 12 months all companies will legally have to enrol you. The reason for this new law is because there are so many people in the UK with very minimal retirement savings. It is important to note that you can still opt out of auto enrolment if you wish.

How much can you afford to pay into your pension scheme?

If you are willing to sign up to a pension scheme you need to calculate how much of your wages you can afford to contribute into your pension scheme without damaging your life at present; remember that saving is beneficial for the future but you won’t be able to access your pension savings until later in life without severe penalties so do not invest too much.

What types of pension schemes are there?

Pensions come in a number of shapes and sizes. The first difference you need to understand is whether it is a final salary pension or a private pension?

Final salary pensions - Normally this type of pension is largely funded by employers, however staff can on occassion pay into them themselves. The way they work is that you get a percentage of your final salary before retirement or when you leave the company, as an annual income. The percetage of what you will receive depends on the length of time that you worked for that particular company.

Private pensions - They all differ in the way your money is invested and/or the level of charges. This type of pension comes in three main categories:

1. Standard pensions are where your employer coupled with yourself contribute regularly (monthly). The money is invested by the pension company until you retire.

2. Stakeholder pensions are very similar to a standard pension but differ in that they have have low and flexible minimum contributions, capped charges and a default investment choice. This means you do not have to decide where you put your money.

3. Self invested personal pensions otherwise known as SIPPS are great DIY pensions. They work in the same way but will allow you personally to choose your investments. If you are reasonably savvy and prepared to do a bit of research and legwork you can run a SIPP on the cheap yourself.

State pensions - Easily forgotten because of the minimal amount you will receive, a statement pension is a small pension from the Government when you hit the state retirement age. At the moment the basic state pension pays out £110.15 per week. You will have to pay national insurance contributions throughout your working life to qualify for this pension.

How secure is your money?

There are often horror stories of pension savings which are gambled by the wrong investors and then lost forever; make sure you chose a reputable firm for your private pension scheme so that your payments are protected by law.

When can you claim your pension?

If you dream of retiring on a secluded beach aged 60 then you need to check the penalties for claiming your pension early, and make sure you read the small print and are fully aware of the instalments you will be paid in and over how many years. All of this must be accounted for when budgeting how much to save as well.