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Join in the informed book club Pensions Overview
PENSIONS OVERVIEW Great Savings Vehicle
Pensions are rarely out of the news, often getting bad press. In my opinion pensions are a great savings vehicle, however there may be times when another savings vehicle is more suitable. If your employer offers you access to a pension and they offer to contribute to it then as a general rule it makes sense to join, otherwise you will be missing out on this employer contribution.
Planning
However there are other ways to save towards retirement and it may not make sense to pay into a pension if, for example, you have debts that you need to clear. Either way a financial plan is required; burying your head in the sand may seem like the easy option, but dealing with your finances will help you gain control.
How much should I be saving into my pension?
There is no straightforward answer to this question. It is difficult to look at your pension in isolation, and makes sense to look at your whole financial situation. It also makes sense for couples to look at their finances together.
How much you should be saving into a pension depends on a number of factors: affordability; how much you want to retire on; other savings, and the age you want to retire to name a few. Needless to say the earlier you start saving the better.
Benefits
There are many benefits of saving in a pension environment as opposed to elsewhere, not least the tax incentives; you get tax relief on any contributions made into a pension - so any tax you have paid, you get back. This means that if a higher rate tax payer was to save £100 into a pension, the actual cost to them would be £60. Basic rate tax (22% 07/08, changing to 20% 08/09) is reclaimed immediately from HMRC by the Pension company, higher rate tax payers need to reclaim the balance through their Self Assessment Tax return. At retirement you are entitled to 25% of the value of your pension as a Tax Free lump sum.
Taxable
Your resulting pension income is taxable – even State Pension income, however it is paid with no tax taken off.If you get another pension, you’ll usually pay tax on your State Pension through that pension provider’s Pay As You Earn (PAYE) scheme. (Your Tax Office sends your pension provider a new tax code for you to show them how much tax to take off.) This might make the tax on your company or personal pension seem unusually high.
This information has been underpinned by Lorna Shields, Financial Adviser, CTFS Limited
Your resulting pension income is taxable – even State Pension income, however it is paid with no tax taken off.If you get another pension, you’ll usually pay tax on your State Pension through that pension provider’s Pay As You Earn (PAYE) scheme. (Your Tax Office sends your pension provider a new tax code for you to show them how much tax to take off.) This might make the tax on your company or personal pension seem unusually high.
This information has been underpinned by Lorna Shields, Financial Adviser, CTFS Limited
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