By Marcus Rayer Chartered ALIBF, Independent Financial Adviser, Integrity365, a Beavis Morgan group company.
The UK national life expectancy is increasing, meaning that we are both working for longer, but also living longer when we stop working. Due to this, many people find that the state pension alone would be unlikely to provide enough income at retirement to meet their needs. Most do not realise the harsh reality of this until later in life, however, with careful planning from the earliest stage there are ways in which you can save for later life to provide further income at retirement. A very popular and effective solution for this is through the use of a pension.
Simply put, the earlier you start saving, the better. By contributing to a pension at a younger age, the effects of compound growth on your savings means that your savings could potentially grow more in value the longer it is saved. It is also never too late to get into the habit of saving – even if you are at the later stages of your working life – the benefits of saving versus doing nothing will always be more advantageous.
How early can you begin to save into a pension?
It is possible to save for retirement from birth with a Junior SIPP, into which family and relatives can contribute on the child’s behalf. However, saving for retirement this early may not always be practical for everyone, and means that any monies invested will be tied up until the child reaches at least the age of 57.
Workplace Pension Schemes
Since the introduction of workplace pensions, many more people who are employed now have access to the generous tax reliefs available from the government for pension saving. Typically, employers will offer a pension scheme that matches your contributions up to a certain limit and it is usually worth joining this, as otherwise you are effectively turning down extra pay.
It is often also thought of as best practice to increase your level of contribution to your workplace pension in line with any pay increases you receive. That way, your pension will increase at a greater rate, but you will not notice a decrease in your salary when compared to previous months.
Your contributions will be collected through your salary each month, and any contributions from your employer will also be added. Although this is arranged through your workplace, you will still have a choice in how your money is invested, so that you can tailor it to your investment preferences.
Self-Employed Pensions
If you work for yourself, you would not usually be automatically enrolled into a company pension scheme, however, you can still save for your retirement via a pension and earn tax relief. Just like employees within a workplace pension, the sooner you start saving, the more you could save towards your retirement. However, if you own your business, you could also consider paying part of your salary directly into your pension as an employer contribution. This then reduces your business’ liability for corporation tax, and your personal liability for income tax.
It is important to regularly review your situation, as your circumstances can change at any time. From starting a new job, moving home, taking a career break, having children – life events that could occur at any time can affect your pension contributions and therefore your income at retirement. As a rule of thumb, it is wise to review your savings at least annually to help ensure you remain on track to achieve your objectives, and budget accordingly. For any assistance with your pension and retirement planning needs, please do not hesitate to get in touch with an Integrity365 Independent Financial Adviser who would be more than happy to help.
Please note that the value of investments can change, and you could lose money as well as making it. How you may be taxed also depends on your individual circumstances, and pension and tax rules can also change in future.
For more information, contact Neal Groves, Head of Personal Tax at Beavis Morgan, who will discuss your situation and put you in touch the an adviser at Integrity365 who will advise on the best course of action for you.