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  • Pensions
  • Savings
  • Investments

Pensions

A Personal Pension is a long-term investment that you build-up during working life so that your retirement is not spent worrying about money. But with tax-rules, Government contributions and Pension restrictions on the age you need to be to cash in, it can often seem like a dark art.

We believe a Personal Pension should be no different to any other investment; it should help you reach your financial goals as quickly as possible and you should have complete visibility and control at all times. That’s why our Fully-Managed Investment Portfolio in a Pension gives you exactly that.

Why saving for retirement is important

The maximum basic State Pension is far below the figure on which most people say they hope to retire.

More than half of people in the UK either are not saving at all for their retirement or they are not saving nearly enough to give them the standard of living they hope for when they retire.

If you fall into this category, you have three choices. You can:

  • Adjust downwards your expectations of what you’ll be able to afford in retirement
  • Start saving more
  • Retire later

Do not rely on the State Pension to keep you going in retirement. The maximum basic State Pension of £164.35 from 6 April 2018 is far below the minimum figure on which most people state they could manage financially.

The advantages of saving into a pension

Once you have decided to start saving for retirement, you need to choose how to do so. Pensions have a number of important advantages that will make your savings grow more rapidly than might otherwise be the case.

A pension is basically a long-term savings plan with tax relief – your regular contributions are invested so that they grow throughout your career and then provide you with an income in retirement. Generally, you can access the money in your pension pot from the age of 55.

How tax relief tops up your pension pot

Once your income is over a certain level, the government takes tax from your earnings. You can see this on your payslip. If you put money into a personal pension scheme, it qualifies for tax relief. This means that as well as the money you’re putting in, some of your money that would have gone to the government as tax now goes into your pension pot instead. The government will still put tax relief into your pension pot, even if your income is too low to pay tax.

A tax-free lump sum when you retire

You can usually take up to a quarter of your pension savings as a tax-free lump sum. If you have built up your own pension pot in a defined contribution scheme (as opposed to a salary-related pension scheme) you can then use the rest of your pot as you choose from age 55 onwards.

Taking your pension from April 2015

You must have reached normal minimum pension age to access your pension pot – currently 55 (or earlier if you’re in ill health or if you have a protected retirement age).

Changes introduced from April 2015 give you freedom over how you can use your pension pot(s) if you’re 55 or over and have a pension based on how much has been paid into your pot (a defined contribution scheme).

Whether you plan to retire fully, to cut back your hours gradually or to carry on working for longer, you can now tailor when and how you use your pension – and when you stop saving into it – to fit with your particular retirement journey.

There is a lot to weigh up when working out which option or combination will provide you and any dependents with a reliable and tax-efficient income throughout your retirement. Be sure to use the free, government-backed Pension Wise service to help you understand your options or get financial advice.

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