It used to be so easy – get a job, get paid and enrol in the company’s pension scheme. Once you retired, you would have access to a cash sum to help you live a comfortable life in your old age.
Unfortunately, with recent pension upheavals, the modern mode of job hopping to climb the career ladder, and the cost of life in general, this simple premise is no longer an option for lots of people working in the UK today. That’s why more than half of the population have no savings for retirement or aren’t saving what they need to provide a good standard of life in their golden years.
One thing is for certain; the state pension of the future – if it exists at all – certainly won’t be enough to retire on. And the average person now lives for at least 17 years after their working life ends.
If you have no pension and are worried about the future there are several options. You can either start saving more, aim to retire later, look into other methods of saving, or live out your days on a restricted budget. The choice is yours.
Pensions: The Advantages
Pensions are designed as long-term savings options, which can be withdrawn once you reach the age of 55. They come with a variety of perks including tax relief, employer top-ups, and tax free lump sums of cash to enjoy in your old age.
Essentially, the sooner you can start saving towards your pension and the more you save, the better off you will be in later life. Any cash you put into the pension pot won’t be taxed so you will benefit from this in the future. In a workplace scheme, your employer will also contribute to your pension – if your employer currently doesn’t make such an offer, rest assured it will soon be compulsory across the UK. When you do start to withdraw your pension, you can take out up to a quarter of your cash as a tax free lump sum. The remainder will form your monthly income – which is taxable.
The amount you put away now depends upon your salary, your age and the amount you can afford. There are pensions with varying levels of risk so make sure you understand the product before taking it out. Realistically though your pension is of vital importance, so unless you are struggling with overwhelming debts you should consider putting away a little each month.
Remember, saving for your pension is saving for your future; but if times do get hard, there is always the opportunity to sell your pension to release the cash therein. However, you should seek expert financial advice before embarking on this route.