Pensions & Investments
Getting Started with Your Pension
It’s never too early to think about a time in the future when you can take life at your own pace and not have to work to afford to live.
Looking forward to when you’ll have all the time in the world to do the things you’ve always wanted to do, and the money to do it with, is something we all dream about from time to time.
But what if you could start planning for that time now, so it becomes a reality on your terms?
Along with good health, financial security is one of the most important aspects of your life in retirement. You’ll need enough money to pay for your day to day, with plenty left over so you can relax and enjoy the rest of your life to the max.
As pension specialists we know the most suitable place to start building that kind of financial future today is with a pension. The first step is to discover how a pension can give you all that, and potentially much more.
Welcome to getting started with your pension
At Assure Pensions & Investments, we believe understanding pensions and how they work is essential education for everyone.
In our Introduction To Pensions guide, you’ll find out what a pension is designed to do for you, discover which type of pension is most suitable for you, learn how you can make a start today and get your pension plan underway.
What is a pension and why do I need one?
A pension is simply a long-term savings plan that you pay into during your working life. When you decide to stop working, your pension savings will have grown to provide you with a regular retirement income for life, and access to some tax free cash.
Rather than saving money in a bank or building society savings account, where interest rates are expected to remain very low, a pension goes to work for you behind the scenes, while you’re getting on with living your life between your twenties and early fifties.
Depending on the type of pension you choose, when you reach age 55 you can access your pension pot. This means you can choose to use some of the pension savings you’ve built up as tax free cash.
It also means you can draw an income, which will enable you to make some real lifestyle choices, like going part time or retiring early.
What you haven’t used you can leave to your loved ones free of tax if death occurs prior to age 75 or if after the age of 75 then the beneficiaries pay tax at their marginal rate.
Money for nothing - benefits and incentives
Pensions are worth having because they are tax efficient. The big plus with this is that the Government and your employer pays you to invest in one.
For every £80 you pay into a personal or workplace pension, the Government will give you 20% tax relief, turning your £80 investment into £100
If you pay into a workplace pension, most employers will top up your contribution
At age 55 you can take 25% of your pension as tax free cash to use how you like
How is my money invested?
The money you pay into your pension savings goes into a fund that will be managed and reviewed regularly in accordance with the objectives you have outlined for your retirement as guided by your financial adviser if you have one.
While the value of your pension lifts and dips along with stock market fluctuations, the expectation is that by the time you’re ready to retire, you will have grown a pension pot that will see you through your later years and then can be passed to your loved ones in accordance with your expression of wishes.
There’s no time like the present
When it comes to pensions, the sooner you start saving into a pension fund, the better, because it gives plenty of time to build your financial security and the option to retire early.
However, failing to opt into a workplace pension or take out a personal pension for yourself, limits your choices considerably.
Without a workplace or personal pension in place, you will have to wait until you get to state pension age before you can claim your state pension. The state pension age is currently 66, but is expected to rise to 68 by 2037.
If you have no other way to generate an income in retirement, you will only have the state pension to live on. At the time of publishing our guide, the state pension is £175.20 a week.
What are my pension choices?
There are three main types of pension available. The State Pension, the Personal Pension and the Workplace Pension. During your working life, you could easily make the most of all three.
The State Pension
When you reach state pension age you will receive a pension from the Government. If you were born after 6 April 1978, your retirement age is currently set at 68.
The Government will pay your state pension into your bank account every week until the end of your life. However, the amount you receive depends on how many ‘qualifying years’ you have worked and the National Insurance Contributions (NICs) you have made during your working life.
To qualify for the full state pension of £175.20 a week (or £9,100 a year), you will need to have notched up 35 qualifying years. You can check your National Insurance record and state pension age here … https://www.gov.uk/check-national-insurance-record
The personal pension
A personal pension, also known as a ‘private pension’, puts you in control of how much you pay into it and how it’s invested on the stock market. You can make small monthly payments and larger lump sum contributions.
This type of pension is known as a defined contribution or money purchase pension and you can set one up easily by talking to a pensions adviser.
When you’re ready to retire, you can use the money in your pension to buy an annuity which will give you a fixed, guaranteed income for life. Alternatively you can keep it invested, draw an income from it, or take 25% in tax free cash as and when you need it.
Currently there is a lifetime allowance limit of £1,730,100 which is the maximum size your pension fund can grow to without incurring additional tax.
Remember the value of your pension can go up or down.
The workplace pension
In 2018 the Government introduced the Auto-Enrolment scheme, making it compulsory for all employers to provide a company pension scheme for all eligible employees to join. Employees should be encouraged to join an employer’s workplace pension if it is available.
To be eligible, you need to be aged between 22 and retirement age and earn more than £10,000 a year. You can choose whether to opt in or out.
Each month your employer deducts a percentage of your salary which is paid into your workplace pension fund. Most employers pay an additional percentage into your pension on top of your salary.
In addition, the pension fund manager will add the Government’s tax relief for you, which tops up your pension by 20%.
It’s always a good idea to check your payslip to see how much you and your employer have paid into your pension.
Some older workplace pensions are called ‘defined benefit’ or ‘final salary. If you are fortunate to have one of these, your pension is calculated using the last salary you earned with the company. These schemes are no longer open to new members, if you have previously had one then it is still important that you have it reviewed. However ‘money purchase’ pensions are more common today.
If you leave the company, your pension usually remains in the pension scheme, until you decide to transfer it to a personal pension or use it to buy an annuity at retirement age. Owing to the benefits that pension pots can provide to a family it is vital that you think about past employment and whether you were enrolled in a scheme or not. Your financial adviser can help unearth your pension wealth. Remember it’s always best to seek professional pensions advice before you do this.
Which pension is right for me?
The answer is - they all are. If you’re employed you can pay into a workplace pension. At the same time you will be making National Insurance Contributions via your salary deductions, which go towards your state pension.
If you’re Self-Employed you can set up a personal pension. Any Class 2 National Insurance contributions you make will go towards your state pension.
Anyone can take out a personal pension from the age of 16.
What costs are involved in having a pension?
All pension providers charge fees to set up and manage your pension. Some just charge an annual management fee while others will charge fund fees, exit charges and admin costs.
It’s always best to check there are no hidden charges before you agree to the terms and conditions.
How can Assure Pensions & Investments help?
When it comes to pensions, trust is everything. We always recommend seeking professional advice from a reputable, regulated pension specialist.
This advice in itself is more important now than ever before as pension can be a hugely valuable asset to an individual and their family due to changes in death benefit regulations and we hear all too frequently about people falling victim to pension scams.
At Assure Pensions & Investments we like to get to know you well, so we can understand your retirement aspirations. This means we can develop a plan and a range of choices and pension options that will help you achieve your goals.
We specialise in lifestyle, retirement and tax efficient planning, investments, later life advice (inheritance tax) and wealth protection for your future generations.
Assure Pensions & Investments is a trading name of Spectrum Advice Network Ltd.
Spectrum Advice Network Ltd is an Appointed Representative of Spectrum Wealth Management Ltd which is authorised and regulated by the Financial Conduct Authority. Registered in Northern Ireland No NI672434