Why Should YOU Contribute to a Pension

Sep 18, 2018 | News |

Why Should YOU Contribute to a Pension

We are marking Pensions Awareness Day (Sep 15th) by organising for a financial advisor to talk to our staff about the forthcoming changes to company pensions, and the benefits of investing in a pension fund. To tie in with this session, Michelle Mullin of Beardmore and Co shares a few of nuggets of information with us all below.

Pensions Awareness Day is a good time to start asking yourself some key questions about your retirement planning. How much should I be contributing towards retirement, what should I be investing my pension in, how much will I need to live on each year, when do I plan on retiring?

What are the benefits of having a pension?

  • You receive tax relief on your personal contributions at your marginal tax rate i.e. if a basic rate tax payer contributes £10,000 to a pension, the government will add £2,500 tax relief to this, giving you a contribution of £12,500, for a higher rate payer the tax relief would be £16,666.
  • The greater provision you make during your working life, the greater your chance of a more comfortable retirement.
  • Under the Government’s auto-enrolment scheme, employees over 22 years old, earning more than £10,000, will be automatically opted into a company pension scheme – meaning the company has to make contributions into the fund on your behalf.
  • 25% of the withdrawals are tax free i.e. if you have a pension fund of £100,000, you can withdraw 25% of this as tax free cash.
  • Pension freedoms now mean that you can take your pension as flexibly as you like. You can use these funds to top up your income, or fund adhoc projects e.g. house renovations, larger holidays etc.
  • Pensions can reduce your tax liability! For example, if you are a higher rate tax payer, and your pension contribution takes your earnings below the higher rate threshold, you will become a basic rate tax payer, which is a tax saving of 20%.
    If you are in receipt of Child Benefit, a pension contribution which takes your income below £50,000 would mean you keep your full Child Benefit allowance.
  • It’s a good savings tool – once your funds have been placed in a pension scheme, you are unable to withdraw these until the minimum pension age.
  • If you were to pass away before withdrawing the full value of your retirement benefits, the pension fund can be passed to your chosen family members.

What does this mean for you?

  • The maximum state pension is currently £164.35pw (18/19 Tax Year). Could you survive on this income alone?

How much should you be saving?

  • A rough guide for the percentage of your salary you should be saving into your pension each month is half your age i.e. if you are 40, you should be contributing 20% of your salary into your pension.

How much income could your pension fund provide you in retirement?

  • In today’s terms, a £100,000 fund value would provide a 65 year old with an income of £3,545.40 per annum, which would increase with inflation each year.

For more information on how to make your money work for you, you should contact your Financial Adviser.

Michelle Mullin DipPFS
Paraplanner at Beardmore & Co