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 back 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. And the image of the pensioner with the tartan rug is long gone; especially given that you can take your retirement benefits from age 55.
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. What you need is an action plan.
The proper way to save for retirement
There are lots of ways you could save for your retirement. But the only one designed specifically with retirement in mind is a pension. Some people steer clear of pensions because they think they're too complicated.
But in reality, a pension is just another type of savings plan. You pay money 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.
And because pensions are designed specifically for retirement, they offer a number of advantages that other savings plans don't.
- The money you pay in benefits from tax relief. So if you want to pay £100 into your plan, it'll only cost you £80 and the taxman will pay the other £20.
- 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.
We've based these details on our understanding of current taxation law and practice. They might be affected by any future changes in legislation and your own personal circumstances. If you need more information on tax you should get professional advice.
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 paying into the plan on your behalf. So not joining would be like turning down a pay rise.
Last update: 17 April 2012