Why do you need a pension?
Unfortunately, having a pension is unlikely to make you the envy of your friends and work colleagues.
Simple facts about your pension:
- One of the most tax efficient ways to save for your future.
- You get money from the taxman.
- Your employer may help you to save.
- Contributions come straight from your salary so you don't have to worry about direct debits or cheques.
- It's easy to join.
These days, people are living longer and expecting more from their retirement.
For some of us, retirement is all about getting round to doing things we've always wanted to do, like taking an extra holiday. For most of us however, it's about making sure we maintain the same standard of living we enjoyed when we were working.
Whatever your plans, you'll need to save
You might not be working full time so you won't have your usual money coming in. Relying on the Government is no good either.
Although the basic State pension increases each year, it's actually below the average wage. If you're lucky, it might cover the necessities. But it won't stretch much further than that.
The proper way to save for your future
There are lots of ways you could save for your future. But only pensions are designed specifically for retirement. Some people avoid saving into a pension as they think they're too complicated.
But in reality, a pension is just another type of savings plan. You contribute into it, it's invested for you and you should get back a pot of money to provide you with an income when you retire. Although, the value of your investment can go down as well as up and you may not get back the value of the original investment.
Pensions also offer a number of advantages that other savings plans don't.
- The money you contribute into your plan benefits from tax relief. So if you want to contribute £100 into your plan, it'll only cost you £80 and the taxman will contribute the other £20. These figures assume you pay basic rate tax.
- You can't touch your savings until you're at least age 55, so there's no temptation to dip into them early.
- Your money grows in a tax efficient way.
Tax relief depends on individual circumstances and may change in the future. If you need more information on tax, you should speak to a financial adviser.
A helping hand from your employer
Your employer's on your side too. They realise how important it is for you to save for your future - that's why they've invited you to join their group pension. They might even help by contributing to your plan on your behalf. So not joining would be like turning down a pay rise.
Last updated April 2014