Saving for Retirement

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Today’s young-at-heart pensioners are increasingly taking on new challenges and exploring far flung places. This enthusiasm means that we expect income in retirement to fund an increasingly active and diverse lifestyle.

Despite the bad press and subsequent mistrust of ‘pensions’, this is still the most usual form of retirement savings and their structure and tax treatment means that they will remain appropriate for most people.

The foundation is a combination of employer benefits and personal pension funds. The state pension is in addition.

Time is a very important factor so the earlier you start saving the better. It’s all too easy to concentrate on the ‘here and now’ which makes it an increasingly uphill task to build up sufficient funds. Don’t delay!

If your employer makes any contribution to a pension scheme on your behalf, you are strongly advised to join - now! They may pay a fluctuating amount, a flat amount, or may ‘match’ what you agree to pay up to certain limits.

All employers with more than 5 employees must offer you access to a stakeholder pension with payroll deduction but your employer doesn’t have to contribute to it. This might be the most cost effective and least painful route – your pension contributions can be taken before you receive your pay. You can take the plan with you if you change jobs.

You can set up your own personal stakeholder or low cost personal pension plan and make payments from your bank account. The scope to contribute is more than adequate for most people, because you can generally pay in as much as your salary. You can consider other pension arrangements such as Self Invested Personal Pensions (SIPPs) but these often have higher charges than more simple plans. In our view the extra features are not required by most people, so why pay the extra charges?

Deciding how much to put into your pension arrangement should be a combination of affordability and an understanding of the size of fund required at retirement. Also, you need to establish just how important planning for retirement is for you within your overall affairs and alongside your other objectives.

Enrolment into the basic state scheme or state second pension scheme is automatic but you still need to keep an eye on this aspect so that you maximise your entitlement. There are different classes of contributions. Recent changes to the scheme mean that benefits are calculated for you as an individual, with the removal of widow/widower pensions and pensions for non working spouses.

link: www.thepensionservice.gov.uk