FINANCE
ALL ABOUT
PENSIONS
The age-old adage is true : time flies . Although we know planning for a long retirement is one of life ’ s many priorities , life admin can often be put on the back burner as we ’ re all so busy with the day-to-day , but , on average , we ’ re living much longer than previous generations , so it ’ s time to start thinking about investing in your future .
Saving into a pension can be a really savvy way to futureproof your later life , but don ’ t worry if you ’ re not sure where to begin ; it ’ s OK to start small and build up savings over time – getting started is what ’ s important , so let ’ s begin with the basics .
How do pensions work ?
A pension is a long-term saving plan that you build up across your working life in order to create enough income for later life . They ’ re designed to provide you with money when you are reducing your working hours or stopping work altogether , so , typically , you can ’ t access your pension until you ’ re at least age 55 ( rising to 57 in 2028 ), or sometimes later depending on what pension scheme you have . Pensions are one of the most tax efficient ways to save for retirement , as you are able to receive tax relief on your contributions , which means the government will add money every time you contribute .
Different types of pensions
There are several different types of pensions , but the majority typically fall into one of two themes : Defined Contribution ( DC ), or Defined Benefit ( DB ). It ’ s worth understanding the basics of how these work , as it will have an impact on the options available to you , as well as how you plan to access your retirement benefits when you are ready to retire .
DB pensions are becoming increasingly rare , but offer valuable benefits for those in the scheme ( which runs through your employer ) helping employees accrue benefits based on their earnings , length of service and membership in the scheme . The age at which you can take benefits is set by the scheme and is typically 60 or 65 and the key benefits are that they offer a guaranteed income for life , as well as the option of a tax-free cash lump sum . It ’ s worth noting , however , that the basis on which those benefits are paid might not have the flexibility you ’ re looking for , or fit with your current retirement plans , such as the age at which you want to retire .
A DC pension is based on contributions set up by you , or through your employer . They work by paying a known amount of money into a pension , typically monthly , by you , your employer , or both . The pension plan is often run by a separate pension company and your contributions are invested into funds that will hopefully grow over time , ready for your retirement . The amount of pension capital that you eventually have for retirement will depend on how much you ’ ve paid in , how your pension funds have performed and any charges that apply – so read the small print !
Plan for the retirement you want
The later stages of life look different for everyone , but most people will experience four financial stages along the way : starting your retirement savings , reviewing where you are with them , drawing on your savings and lastly , planning your legacy .
Each stage brings its own challenges and choices , and you will also have your own individual objectives to take into account , so the best advice is to understand exactly where you stand with your employer and which type of pension you ’ re saving into before seeking professional advice from a financial advisor and / or pensions ’ specialist about how your future is looking .
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