Pensions Advice in Wales
Saving for retirement
This is a very useful article taken from Direct.gov.uk, which weeds out the fact from the fiction about pensions. Hope you find it useful.
There’s no perfect answer for where to put your money for later life. There are many different options. For most people, having their own pension is a good thing to think about, although it may not be the only thing worth considering.
How to save for later life
If you want to build on the State Pension, there are many different ways to save. Many people choose to take out their own pension because:
they may get money back in tax relief
they may get additional contributions from their employer
they can lock their money away until they retire
A pension is not the only option, though. There are many other ways to build up money for the long term, including savings accounts, ISAs and a range of other types of investments. Many people choose to invest in property. Each type of savings and investment works differently and has its own pros and cons.
If you would like to explore your options, MoneyMadeClear from the Financial Services Authority will provide you with independent information and tools to help you make up your mind.
MoneyMadeClear Opens new window Savings and investments (Money, tax and benefits section) Company and personal pensions
Company and personal pensions are designed as a way of saving money for retirement. Personal pensions work like this:
Contributing
You put money in, usually while you are working and earning. You start building up your own pot of money as soon as you or your employer starts paying into a pension.
Building up your fund
You can’t touch your fund until you start claiming your pension. It is invested for you, with the aim being to make your pot grow over time.
Deciding to take your money
When you do decide to start claiming your pension you convert your pot into a regular income for the rest of your life. You may also be able to take a tax-free lump sum when you start receiving your pension.
Some company pensions also work like this. They are called money purchase schemes. Other company pensions are salary-related schemes and work differently.
Understanding company pensions Pensions and savings accounts
Pension schemes work differently from savings accounts. With a savings account the growth of your money is normally set at an interest rate. With a pension, the growth could be much higher, but it may not be guaranteed.
There are different types of pension, and different ways to get one. With personal pensions and money purchase company pensions, your pot is invested in stocks and shares, or in other types of investment. There is risk involved, but this generally means your pot will grow over time. So you are likely to get a bigger pension in the long term than if you had invested in a savings account. It is a good idea to be aware of the benefits and risks of a pension.
Benefits of a company or personal pension Risks of a company or personal pension Getting your own pension: fact and fiction
Pensions can be complicated and it is sometimes difficult to separate facts from fiction. Here are some things people say about pensions, and some of the facts.
“You have to put in a minimum of about £100 a month. Otherwise it’s not worth it.”
Fact: There is often no minimum amount you can put in to a company or personal pension. Or the minimum may be as low as £20 a month. For most people, it’s best to start putting money in as early as possible, even if it’s a small amount.
“There’s no point in starting a pension now. It’s too late.”
Fact: The sooner you start putting money in, the more time you (and possibly your employer) have to build up contributions. And you are likely to see more growth in your money over a longer period. The earlier you can start the better – even if it’s just a small amount. For people approaching retirement who prefer not to put money into a pension, there may be better ways to boost their income.
How to catch up if you’ve got little or no pension “I’m not sure it’s worth getting a work pension because the state will always help me out. When my mum retired, they topped up her pension with Pension Credit.”
Fact: Pension Credit is designed to give help to people with small amounts of income and savings. It is not given to everyone – it depends on their individual circumstances. You may still get some Pension Credit when you have a second pension or have some savings. It’s worthwhile for everyone to think about how to save for their own retirement.
