Many people ask whether it is worth having a personal pension. In most cases, the answer will be yes. Whilst pensions can be complex, the fact remains that most people when they retire would like more income than the State Pension will pay. Especially if they have their sights set on a comfortable retirement, or have particular aspirations as to how they’ll spend their time once they’ve finished working. Let’s take a look at some of the benefits of having a pension.
If you are aged over 22 years and under State Pension age, and you earn more than £10,000 a year and work in the UK, you should be automatically enrolled into your employer’s workplace pension scheme. You can opt out if you wish, but it’s a good idea to pay into it if you can afford to, because your employer is bound by law to make a contribution into the scheme as well as you. You can also make additional payments to boost your pension pot if you wish.
Other benefits of having a pension include enjoying tax relief on the contributions you make, as well as on the 25 per cent tax-free lump sum you receive on retirement, depending on the individual provisions of the scheme.
Personal and stakeholder pensions
In addition to your workplace pension, or in place of a workplace pension if you are not eligible, you may wish to take out a personal or stakeholder pension. You still pay contributions into your pension fund direct from your wages, if applicable. If however you are self-employed, or not working, you will need to make your own payment arrangements.
Personal or stakeholder pensions are useful if you wish to save extra money for later in life, perhaps to pursue goals for life after work, such as travel, buying a holiday home or enjoying more leisure activities. These options are often explored as part of broader financial planning when mapping out life after work.
The main difference between arranging a personal or stakeholder pension yourself, and joining one through your workplace, is the level of control you will have over how what you pay in is invested. If you pay into a workplace pension scheme, it is likely that the investment choices will be governed by the pension provider.
Your employer may also pay contributions into your own personal or stakeholder pension, but they are not required to by law. For this reason, it is wise to compare what any workplace pension is offering, compared to similar pensions you’d take out yourself. A financial adviser can help assess which setup offers better long-term value based on your situation.
Which type of pension is right for you?
The best way to ascertain which type of pension is right for you, is to take independent advice from a specialist pension planner. It is important to bear in mind that, depending on your future goals and aspirations, there may be alternatives that will better suit your needs.
There are a few downsides to pensions to consider, such us the fact that you won’t be able to access it until you are 55, at least without incurring costs and fees.
There are also investment risks involved in pensions. Whilst you can mitigate the risks associated by seeking independent advice from a finance professional, it will never be possible to completely guarantee that the investment your pension is in will perform, and you may even lose money. For this reason, some people choose to complement pensions with investment management strategies that align with their risk tolerance. However, as a pension is a long-term investment, and even if you do experience short term losses, the long term gains may outweigh them.
Whilst it is not obligatory to have a personal pension plan, it is important to think about how you will fund your lifestyle once you finish work. It is equally important to ensure that your pension arrangements will actually deliver what you need when you retire.
Looking for independent pension planning advice in Surrey? Talk to the specialists at Partridge Muir & Warren.
When considering your pension options, and looking at the benefits of having a pension, it is vital to take independent financial advice to ensure you are making the right decisions, because your future financial security, and your quality of life in retirement, could depend upon it.
At PMW, we have been providing retirement planning advice and specialist pension guidance since 1969. We offer independent advice on a tailored basis, always focusing on your best interests and personal goals.
To learn more about your pension options, please get in touch.