TIME TO TAKE CONTROL OF YOUR PENSION

YOUR pension may seem like something too far in the distance to bother about as you focus on the present.

But keeping an eye on savings can mean your pot will deliver the retirement you want.

This week is Pension Awareness Week, a campaign to encourage pension savers to make a plan, understand their options and simply make the most of their pensions.

It shouldn’t just be a matter of taking a glance over things this week, pensions should be an ongoing and vital part of your finances – unless you want to be stuck relying on a measly state pension during your retirement.

Andrew Tully, technical expert at pensions giant Canada Life says: “Retirement can seem like a long way off, and therefore decisions around saving for later life can appear easy to put on hold.

“Balancing financial priorities is also difficult but hoping to rely on the Government really is going to be a fool’s paradise. Opting for the live-for-today attitude and hoping for the best is not going to work out.”

Take control now or you might have to work until you drop.

Why pensions are important

The Government promise of a state pension really only provides a basic level of support. This is why companies legally now have to offer an employer sponsored pension scheme where you are auto-enrolled. You and your boss make contributions creating your own personal savings pot in a taxefficient manner which, over many years, will provide an income and cash lump sums to supplement the state pension.

Keep savings on track

This depends on when you want to retire, the income you currently earn and the type of lifestyle you want to enjoy. There is a basic rule of thumb which suggests you should save half your age as a percentage of your salary to enjoy a reasonable lifestyle in retirement. So at age 20, 10%, age 40, 20%, based on someone starting the savings habit today.

If this seems like a lot of money, starting as early as you can and saving regular amounts can make a big difference to the final outcome. The length of time you are saving, and the choices you make about where to invest can also have a big effect on the size of your pot. Taking an active role in looking at those annual statements and seeking professional advice will help keep your plan on track.

Pension vs ISA

Pensions should always be your first port of call, especially if you’re employed and offered a workp lace pension. That’s because your employer wi l l contribute, and in effect this is free money. But it isn’t all just about pensions. ISAs are a great way of getting into the savings habit, and should be considered if you don’t have access to a workplace pension, or as a way to boost your retirement income if you can afford to put more away.

The Lifetime ISA, for people aged 40 or younger, is an efficient way to build up a savings pot, especially for the self-employed.

You can save up to £4,000 a year, with the Government adding a 25% bonus, up to £1,000 a year. Savings can be used to buy your first home or for later life.

Tax

Pensions are incredibly tax efficient. For every £100 saved as a basic rate taxpayer, it will only cost you £80, due to the current tax relief system. For a higher rate tax payer, it’s even more generous - the same contribution only costs £60.

Given the generosity of the system, and the current economic crisis, there is speculation the Government may look at pension tax relief in the Autumn Budget. Options could include introducing a 30% flat rate of relief or reduce it to 20% for all.

Scams

Crooks continue to find ever more inventive ways of encouraging you to part with your money. Action Fraud recently reported that over £30million has been lost to pension scams in the last three years, while Canada Life has this week shown pension fraud since the outbreak of the pandemic is the second most common scam.

And r ew Tu l l y explains: “The scamming frenzy appears to be gathering pace as fraudsters use the cover of Covid-19 to prey on innocent victims. Follow the simple rule – if it appears too good to be true, it inevitably is. Simply walk away, hang up, or delete the email or text.”

Your employer will pay into your pension and this is essentially free money

Retirement Options

The age at which you get your state pension has increased over the past few years, currently rising to 66 for all and to age 67 in the future. This makes it more important to have your own private/ workplace savings to give you more choice in later life.

The earliest you can access private pensions is currently at 55, increasing to 57 by 2028. That doesn’t necessarily mean you should access savings at that age, especially if you have plans to keep on working.

You can take the first 25% of savings tax-free and pay tax on further withdrawals. As the pension goalposts move, it simply points to everyone needing to take control of their own financial futures.