At Prestige Tax and Trust Services we understand that saving for your retirement is vitally important if you want to maintain a comfortable standard of living into your old age. There are a number of different pensions available and it’s important to figure out which one is best for you.
A pension is a savings plan and can be paid into by you, your employer or a combination of both. This pot is then topped up by the government as an incentive to encourage personal saving. The sooner you start paying into a pension, the larger the amount will be upon retirement. You can pay in lump sums or on a monthly basis.
The best known plan is that offered by the government; the state pension. The current state pension allowance is £97.65 per week for single people and £195.30 for married couples. The retirement age is currently 65 for men and 60 for women. However as of 2018 the age will be equalised at 65 for men and women, and by 2020, this age will rise to 66. Relying entirely on the government to fund your retirement is unwise however, as the finances of the country are already stretched beyond their resources. It’s best to take responsibility for your own future.
Some employers offer a defined benefit pension. These plans pay out a pension that is equal to the number of years’ service given, multiplied by part of your salary at the point of retirement. These pay outs are often very generous, but not common nowadays due to the costs incurred by the employer.
The most common employer-run pensions are defined contributions schemes. Both the employer and the employee pay in. Usually the employee pays a percentage of their salary, which is then matched or exceeded by the employer.
Alternatively you may wish to start a personal pension plan (PPP) outside of work. These schemes are run by financial organisations like banks or insurance companies, and you can pay in as often as you like. The companies invest your money into stocks, bonds, property or cash with the aim of building up a large amount of money with which you would then buy an annual income.
With a PPP, it is up to you to decide how you will receive your money when you retire. You may want to buy an annuity. This is essentially an insurance policy. You receive a regular income in return for a lump sum. However because interest rates have fallen in recent years, you’ll get less income for your money. Annuity plans take into account things such as your age, health and lifestyle to calculate how long you’re likely to live. Essentially they are insurance to cover a long life – the opposite of a life insurance policy that pays out if you die early. Unfortunately this means that if you die suddenly or unexpectedly, the company will keep your lump sum.
It is vitally important to plan for the future and consider your finances. If you have any questions about moving forward, making a will or estate planning, the team at Prestige Tax and Trust Services would love to hear from you.