Pension Awareness Day
As 15th September is Pension Awareness Day (yes, it’s actually a thing!), I thought it would be a great opportunity to quickly revisit the world of pensions and retirement, offering up some tips and useful information to help keep you in the know.
As well as looking after your own retirement, have you looked at the possibility of setting your children or grandchildren on the right path to financial security? I firmly believe that pensions are about the most tax-efficient savings account for most people to utilise.
What are the benefits?
One of the main benefits of a pension is that you get tax relief on contributions.
For example, if you pay £1,000 into your pension, the government will give you £250 of tax relief straight away and you can claim back up to 40% in total if you are a higher rate tax payer; so for a £750 net outlay, you can effectively have £1,250 working for you in your pension.
If you have already funded your own comfortable retirement, you can also make a pension contribution on behalf of your children and grandchildren. This will increase their retirement provision and they will be able to claim their own rate of income tax relief on your gift. In most cases the added bonus is that this will also reduce the value of your own estate for Inheritance Tax purposes by the amount of contribution paid.
It is worth bearing in mind that all employers must now contribute to a pension scheme on behalf of their qualifying employees. From April 2018, the total minimum pension contribution is 5% of an employee’s salary and in April 2019 this is set to increase to 8%.
Are you and your loved ones saving enough?
Probably not, the minimum contribution levels for auto-enrolment are not enough in themselves for most people to enjoy a comfortable retirement.
Therefore, as a rough guide take the age you or your children/grandchildren start funding the pension and halve it; then put this % of your pre-tax salary into a pension each year until you retire.
As an example, a guide for someone starting to save for their retirement at the age of 26 is that they need to put 13% of their salary into their pension for the rest of their working life; whereas, someone who started later at aged 36 needs to put 18% of their salary away.
Therefore, the earlier you start, the easier it is to save – simples!
Did you know?
Most pensions remain outside of your estate when you pass away and can be left to your children or your grandchildren, in many cases tax free.
In summary it is never too early to start saving for retirement and everyone should make as much provision as they can afford throughout their working lives. Raise this issue with your loved ones and help them to look forward to a good retirement without money worries.