Pensions explained
Pensions in their simplest form are merely a way of saving money for a period in your life when you need to boost your income, generally because you are retiring.
Whilst the Government currently provides a state pension for most people, the level and age at which you will receive this keeps on changing and if you purely rely on this form of income when you retire, you may be disappointed.
Therefore, it is worthwhile considering making your own arrangements and the earlier you start saving the greater the chance you will have of achieving your financial retirement goals.
Pensions are just one way of saving money for your retirement and many people choose to save in other ways including property or shares. However, saving money via a pension is tax efficient and has significant advantages over other forms of savings.
The Government has offered considerable tax advantages to encourage people to save in this way:
Tax relief on contributions
Tax relief is added to your contributions at varying levels depending on your marginal rate of tax. As an example, if a basic rate taxpayer were to contribute £400 per month then this amount will be boosted by £100 so the total amount invested would be £500. Higher rate taxpayers will receive additional incentives.
Tax efficiency on growth
Any funds within your pension will be able to grow free from UK income tax and capital gains tax.
Tax free lump sum
From the age of 55 you will be able to access up to 25% of your fund as a tax-free lump sum. The remainder, depending on the type of scheme, will have to be taken as an income or can be left invested until such time you need that income.
With some planning it is also possible to utilise “salary or bonus exchange” schemes which will again boost your own contributions.
For an initial enquiry or a comprehensive financial review please email enquiries@pennymatters.co.uk
