Pensions have been all over the news lately
If you are paying any sort of attention to the mainstream media, you will be hearing about pensions. They are talking a lot about the rising costs of gilts and whether the state pension will increase in line with inflation. The markets are turbulent at the moment so you will be bombarded with this sort of stuff. All this aside, getting the most out of your pension savings currently can help you retire early.
There are many different ways the you can make the money go further. Getting the most out of your pension savings is something you should be clued up on. It’s probably not something a lot of people talk or think about though, until it’s too late. Let’s look at some ways you can really make your pension pot go further.
Getting the most out of your employer
When given the option to join a workplace pension, it is almost always a smart idea to do so. Most employers are required to automatically enrol you in a workplace pension scheme, and you may be given a pension plan even if you do not satisfy the qualifications.
Workplace pension schemes are made up of your personal contributions (5% or more of wages) that are withdrawn from your paycheck, frequently before you pay tax, making it simpler to save, and your employer’s contribution, which must be at least 3% of your earnings.
Many businesses give more or match any additional contributions you make, so it’s worth checking to see whether you’re making the most of this useful perk.
The government can be your friend
Anyone who chooses not to invest in a workplace or personal pension also declines government assistance. This is because, in order to encourage individuals to prepare for retirement, the government gives a supplement to pension payments known as ‘tax relief.’
The manner in which you obtain tax relief is determined by the type of plan you have and the rate of income tax you pay. However, if you are a basic rate taxpayer and contribute to a personal pension in the current tax year, you will receive 20% tax relief on your payments. So, if you contribute £200 per month into your pension plan, the £40 in tax relief means it will only cost you £160.
Higher or extra rate taxpayers may be able to claim even more. Some workplace pension plans provide tax savings in other ways, such as through salary sacrifice or exchange schemes, so check with your employer if you’re unsure how this works for you. In addition, the tax relief specifics change significantly in Scotland. But the main argument is the same in all of these cases: every time you delay paying into a pension plan, you lose out on an additional boost.
Always review your retirement plans
You may not want to discuss your pension plan every day, but rejecting pensions as uninteresting is a mistake that grows more serious over time. While this may be challenging at the present, efforts like topping up your payments, particularly if you are in your 20s, 30s, or early 40s, may make a significant impact due to the snowball effect of compounding.
Understanding your workplace or private pension, as well as knowing how to earn more ‘free’ payments from your company or the government, or utilising it to pay less tax (for example, through bonus sacrifice), might make a significant difference in your long-term finances.
Putting as little as possible towards your pension is unlikely to be enough
Although auto-enrollment has increased pension savings for millions of individuals, the 8% minimum contribution may not provide you with the retirement lifestyle you need. It’s therefore critical to plan your retirement lifestyle – the PLSA calculations can help here since they may offer you a genuine figure to strive for, and you can then work out what’s practical and put the required actions in place to help you accomplish your objectives.
With all this in mind, it’s good to have a clear objective as to what you need and want from retirement. Getting the most out of your pension savings is key to this. To help, it’s best to enlist the help of a professional. Our financial advisors have plenty of experience and are waiting to help you. Contact us today and see how we can tailor our expertise to your scenario.
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