Retirement might seem a distant horizon away or it could be on your doorstep very soon. No matter your age, the questions usually surrounding pensions are: should I start investing now and how can I be expected to use it when I need to?
Like the other posts in our ‘Value of…’ series, investing as soon as you can into your pension maximises how much you get in return. Start young, start early and get the best results to support yourself in your later years.
The question isn’t what age you want to retire at, but at what income?
Note that you get tax relief on your saving at your marginal rate of tax. Funds accumulate tax-free until retirement and you get a percentage at retirement — it’s an important long-term investment that goes straight back into your pocket.
A state pension usually covers considerably less than what you need, so having an individual pension in place takes away the worry of supporting yourself when you’re older, allowing you a degree of independence and freedom to enjoy your time as you so wish.
Most employers and companies offer a company pension plan. You will benefit from the employer contributions and furthermore, may also be required to add to the plan yourself with usually a small amount taken out of your monthly wage. This contribution – though it might not seem a lot when you’re young – can become very large in the future.
Check with your current place of employment and see if they offer a pension plan and what sort of contributions they make (if any). It might surprise you what they can offer!
What about if I change jobs?
There are a number of options available if you’re starting a new job, including transferring any accrued benefits and proceeds into a plan in your own name. Find out what your new employer has to offer for pension plans, compare it to your current workplace and don’t hesitate to see what services we offer for pensions and retirement plans.
What if I am a company director?
If you’re interested in arranging your company to set up a pension plan for you, talk to us and we can discuss setting up a plan. This is so the company makes pension contributions on your behalf and the business can claim corporation tax relief on all such payments. This method of making provision for retirement is very tax efficient as the payment of contributions to the plan is effectively a ‘deferred salary’ payment for you to enjoy in the future.
How can I use my pension?
Not sure what you’re entitled to use once you’ve retired? There are two main ways to use your pension:
Exchange savings for a guaranteed income – this is essentially like buying yourself a salaried income, you turn your investment into a monthly sum to support you for the rest of your days, so you don’t feel much of a change in your day-to-day situation when you retire.
Reinvest your savings – take some tax-free cash – this is usually 25% of your final fund value or indeed a higher amount if you have long service with your former employer. With the balance you can live off the investment on any potential returns it makes. This requires a little more careful planning, as your investment will fluctuate in value and your income could go up and down.
Which option you choose may depend on how much your pension is worth and the level of income you would prefer. Truly, there is no ‘right’ or ‘wrong’ answer, all of it depends on your personal circumstances and preferences.
Talk to us!
At Full Circle Financial Services Limited we have plenty of experience in this area and are happy to guide you to make the most appropriate choices for you. If you’re interested in starting your own pension, want to explore what options are available to you or are coming up to your retirement and are after some advice on what to do, get in touch and we’d be more than happy to help.