PENSIONS & INVESTING:
If you are confused about pensions, especially at the moment, this feature should answer some of your questions, advise you on how much to invest, and hopefully put your mind at ease during economic uncertainty.
Hefty falls on the stock market recently are likely to impact on the value of pensions and investments during the crisis. Interest rate cuts are not good news for savers, and Premium Bonds holders have been warned to brace themselves for rate cuts. At times of economic uncertainty it’s natural to feel concerned about our retirement pots and how we will be impacted. But, following the last economic crash, the industry is governed by stricter funding rules and is better placed to deal with the turbulence. It’s wise to be aware of where and how your money is invested so that you can make the best decisions about your future. Here we answer a few key questions:
What’s the difference between pensions and other savings?
A pension is designed specifically to provide an income in retirement. Money is paid into a pension plan and invested by your pension provider, using your investment instructions, or you can let them make that decision for you. Once you reach your chosen retirement age you can decide how your money is paid back to you. A big difference between a pension and other savings products is that you receive some tax back on the money saved into your pension, that would have otherwise gone to the Government. How much you get when you’re ready to take your pension will depend on how much you save, how your pension investments perform and how long you’re invested for.
What types of pensions are there?
Starting with your state pension, how much you receive depends on your national insurance record, which you can get an estimate of at gov.uk/ check-state-pension. If you also have a workplace pension, contributions will be taken directly from your salary and put into a pension plan, arranged by your employer. Government contributions are added in the form of tax relief. Another option is a private or personal pension, where you choose the provider and arrange for your contributions to be paid directly from your bank account.
Why should I keep saving into my workplace pension?
Effectively, you and your employer are putting part of your salary away now, tax-free, with a view to you being able to enjoy more in the future. A good way to look at this is that your workplace pension is essentially deferred pay for your future self.
What’s in my pension?
Pension providers usually offer a range of funds where your money can be invested. If you belong to a workplace scheme, and you don’t say how you want your contributions invested, your money will automatically go into a ‘default’ fund set up by the provider. You want your investments to grow, but bear in mind investments can go down in value, as well as up.
How do I decide when to take money from my workplace pension?
When and how you take money from your pension is a big decision – it can affect how long your pension pot lasts. The pension freedoms introduced in 2015 allow people aged 55 or over to take their pensions however they wish. The first 25% of pots is tax-free. Before you take any money out though, consider if you really need to, and remember that you don’t need to take all your tax-free cash in one go.