What Is A Pension?
From next year, all employers are going to be required to provide a Workplace Pension scheme. This type of Auto Enrolment started in 2012, helping millions of employees to start putting money towards retirement.
Despite this change, there is still a Knowledge Gap around Pensions and retirement. You may have found yourself entered into Auto Enrolment, but perhaps you’ve then overlooked the ongoing process of building your retirement pot.
A Pension is a financial product designed to build up a source of money for you in retirement. This retirement fund is built up over many years, and benefits from tax relief. Once you retire, you can use this money to support the cost of continuing to live comfortably.
There are different types of Pension to consider. The most basic provision is the State Pension, which is provided by the government based upon National Insurance contributions. The most you can currently get from this is £122.30 a week.
The Auto Enrolment Workplace Pension is a way to work towards a source of income in retirement which is more in fitting with the cost of the lifestyle you are accustomed to.
A percentage of your salary is paid into the scheme each payday, and with an Automatic Enrolement Pension, your employer also adds money. You may also get tax relief from the government on your personal contributions.
Typically, these type of Pensions are put into funds, with the aim of growing your money over time, leading to an income in retirement which may give you the freedom to enjoy a comfortable lifestyle.
If you choose not to start a Pension, you could find that in retirement you don’t have the funds to maintain the lifestyle you are used to. Our Savings Gap research found that a retirement income of £23,000 is needed. However, based on actual savings behavior, we found that people are on course to receive just £6,000 from their retirement fund. This highlights the need to think carefully about how you will fund retirement.
To sum up a Pension and its benefits –
- A way of building up a source of income for retirement.
- The potential of employer contribution and tax relief from the government.