How can you make the most of your pension?
It may feel like you have years of retirement planning left until you’re going to need to access your pension, and that may well be the case, but it’s never too early to understand more about how it’s safeguarding against your post-working life. If you signed up for your pension a long time ago, or if you have a workplace pension scheme that you opted in to, it’s possible that you don’t actually know who provides your pension though – let alone what the terms and benefits are.
If you’re unsure of your pension situation, don’t worry. We’ve put together some simple guidelines to help you understand how to make the most of it.
Consider it an investment, not an expense
Whatever your age now, the reality is that you are growing older every day. Putting aside money into a pension plan now is therefore not something you should view as an expense, but an investment for your future, and the payments made by your employer each month are invested so that they have a chance to grow over time.
Make sure you’re taking advantage of employer contributions
If you have a workplace pension plan it’s particularly easy to get into the habit of putting money aside, as it can come out of your salary before your regular pay. This gets you used to budgeting for it, as you never even see it’s there, so psychologically, you can feel less like it’s something extra that you are paying for. Even better, if that your employer will contribute to your pension too. In most cases this is at least 3% of your salary, and payments can increase with the more you save, as your employer may increase their contributions in line with this. You might have to wait a while to get it, but this is essentially free money!
Get help from the taxman too!
Pension plans all work differently, but if you have a workplace plan, you may be able to get pension tax relief, meaning that when you save into your pension, you get tax relief based on the income tax you pay.
If you pay basic rate income tax, for example, you would get 20% tax relief, meaning that it would actually only cost you £80 to save £100 into your pension. The savings become even greater if you pay higher rates of income tax.
Flexibility to suit your needs
Pension plans are all different and can offer freedom and flexibility depending on your circumstances. When you need to start thinking about accessing your savings, there are far more options than there used to be. A flexible pension may allow you to access your money from the age of 55, but this may of course change in the future. You may decide to leave your savings to accumulate, or access some of them while continuing to work. Whatever your situation though, we are always here to advise you on how to draw the money you have saved in the most beneficial and tax-efficient way possible.
This article does not constitute financial advice and should not be construed as such.