A pension is a long-term, tax-efficient savings method that helps you set money aside for later life and retirement. The money you amass can be used as an income when you retire.
There are a number of pension types available, including state pensions, personal pensions and auto-enrolment workplace schemes.
Once you reach State Pension age, you’ll be able to access your State Pension, a regular payment paid to you by the Government. To be eligible, you’ll need to have paid or been credited with a minimum level of qualifying National Insurance contributions.
With a personal pension, you can pay in cash as often you like. The amount contributed is invested with the aim of growing the funds by the time you retire.
Currently, you can invest up to £40,000 tax-free each year, however this does depend on your earnings. You can withdraw your funds once you reach 55.
Auto-enrolment is a workplace pension organised through your employer. You’ll pay in a portion of your wage, while your employer and the Government will also contribute. Currently, the minimum contribution is 2%, made up of a 0.8% from you, 1% from your employer and 0.2% from the Government. This is set to increase as of April 6th 2018.
You can pay any amount into your personal pension in a single year, although there are tax relief limits.
Typically, to receive tax relief on your pension contributions, you can pay in up to 100% of your earnings or the current annual allowance of £40,000, whichever is lower.
Typically, you’re able to withdraw 25% of your pension pot without paying tax. You will pay income tax on the remaining 75%. The amount payable as tax depends on your total yearly income and your tax rate.
The tax you pay on your pension will be automatically deducted by your pension provider when you withdraw the funds.
The rules of your pension scheme will detail when you can access your pension pot, although generally it’s normally when you reach 55 years old.
In some cases, you may be able to retire earlier than 55. This applies if your job has a lower retirement age, such as if you’re a professional sportsman, if you have poor health or if the rules of your pension state a lower age.
Those with a workplace pension may need to gain the consent of their present or past employer before they can access the benefits of their pension early.
With a personal pension, you do not need this consent, but early access must be stipulated within the terms and conditions of your contract.
A personal or private pension is a way of financial planning for your retirement. Each month, you’ll contribute an amount to your pension, which you’ll arrange with a personal pension provider like True Potential Investor. You can also make ad hoc contributions as you see fit.
Usually, the money you invest is put into stocks, shares and other investments with the aim of increasing your overall funds ahead of your retirement. You can control where your money is invested, as well as the associated level of risk that you are comfortable with.
For each contribution you make, your pension provider will claim tax relief at the basic rate and add it to your overall pension pot. Higher and additional rate tax payers are usually able to claim more via self-assessment to HMRC.
By retirement, you should have a sizeable pension pot that you can use during retirement. However, the amount you accumulate will depend on the following:
Once you retire, you can:
Unlike with workplace pensions, you’ll have to set up your own private pension, should you choose to do so.
The first step is to decide on a personal pension provider, like True Potential Investor. There are many providers available, so it’s important you weigh up the pros and cons to help you find the most suitable provider for your needs. Overall, here are the most important factors to consider:
Once you have selected a provider, you will need to choose from the different types of personal pensions. These include:
You’ll then need to decide how to invest your funds. Each option has varying levels of risk, so you should choose the most suitable option for you.
A pension is a great way to plan financially for your future once you retire. There are two main types of pensions: personal pensions and workplace pensions.
With a personal pension, you’ll set aside money for your future into an account with a specialist pension provider, like True Potential Investor. How you set up your personal pension will differ between providers, although the most important factors to consider are:
You can find out more information about how to set up a personal pension here.
Your employer is responsible for setting up your workplace pension. Similar to a personal pension, it’s a way of contributing a proportion of your wages each month towards your retirement with the aim of growing your funds. In many cases, your employer will contribute too, and you may receive tax relief from the Government.
By law, all employers must provide a workplace pension through automatic enrolment by 2018. You will be automatically enrolled onto the scheme if you are an employee who is:
You do not need to set up a workplace pension, your employer will do it for you. If you do not meet these requirements, you can choose to opt in, or alternatively, you can also opt out.
When you turn 55, you’ll be able to access your pension pot, unless there are special circumstances where you can access it earlier, such as being in ill health. You’ll be able to access 25% of your pension pot tax-free. Any amount you take after this limit will be subject to income tax.
You don’t have to access your pension pot at 55, rather, you can leave your pot untouched to continue to grow for when you need it more.
It’s difficult to say exactly how much private pension you’ll have when you retire, as it depends on a number of factors including:
When considering how much you’ll need in retirement, remember that you can essentially ‘top-up’ your pension pot with your state pension. This is currently £122.30 per week, although the amount you receive depends on your personal circumstances. More information about your entitlements can be found on GOV.UK.
If you’re new to investments, you’ll likely have a lot of questions, including how to invest. There are a lot of options out there, take a look at True Potential Investor’s overview of some of the main investment methods available to you:
True Potential Investor offer the following investment accounts:
Before you invest, make sure you have a clear goal in mind — whether it’s short-term or retirement savings. Then, select the most appropriate investment option for you and enlist the help of an investment specialist, such as True Potential Investor.
Knowing how much you need to save for retirement is based on a number of factors, many of which will be individual to you.
According to our polling of over 30,000 people, £23,000 is needed annually to live comfortably in retirement. However, people in the UK are on course to receive just £6,000 once they retire.
The actual amount you will need in retirement will depend on a number of factors, including:
The age you start contributing towards your pension could impact the size of the monthly instalments you pay. If you start contributing later in life, you may have to increase the amount you contribute to meet your overall pension goal.
Start saving for your future with True Potential Investor’s personal pension accounts.
Private pensions are a way of building up a retirement fund that you can use in later life. You’ll contribute to the pot usually over a number of years, which is invested with the aim of growing the fund by the time you retire.
There is no limit to how much you can invest in your pension, but you can only invest either £40,000 or up to 100% of your income, whichever is lower, tax free in this tax year.
Currently, you can access your private pension from the age of 55, although this is set to rise to 57 by 2028. When you reach retirement age, you can withdraw your pension as a lump sum or take a regular income over time.
You won’t pay tax on any income or capital gains generated from your private pension, and you’ll receive tax relief on the contributions you make. When it comes to accessing your pension, you will typically have a 25% tax-free allowance, meaning you can:
Learn more about True Potential Investor’s personal pension accounts.
You’ve contributed to it for many years, but what can you do with your pension pot? When you reach the current retirement age of 55, you’ll be able to access your funds, so it’s important to understand your options:
If you choose to receive your entire pension as a lump sum, you can typically access 25% as a tax-free lump sum, while the remaining 75% will be taxed as income.
With this option, you’ll typically receive a 25% tax-free lump sum. With the remainder of your pension, you can purchase an annuity, which provides an annual income for the rest of your life. With our personal pension accounts, you can use flexible drawdown to take an income from your pot. This income is taxable.
Instead of taking a lump sum, you can simply take a regular income, typically receiving 25% tax-free.
You can access your pension from 55 years old, but it doesn’t mean you have to. You could leave your pension pot untouched and keep contributing until you need it, offering greater growth potential.
By fully understanding your options, you can choose the most suitable for you in retirement.
With personal pensions and employers now being legally required to offer a workplace pension, many people now have more than one pension.
In fact, there is no limit to the number of pensions you can have or the amount that’s in your pension.
However, you need to consider whether having multiple pension accounts is beneficial. For example, you may be paying multiple account management and investment fees which, depending on the performance of your investment, may significantly impact how much your account is actually growing — if at all.
If this is the case or if you’re struggling to keep track of multiple pots, it may be wise to transfer your pensions to reduce the number of funds you have with the aim of improving the overall return you receive.
When you reach retirement age and decide to access your pension pot, you’ll typically receive 25% of the total amount tax free. There are two ways you can access your tax-free amount:
You can typically take 25% of your pension as a lump sum and you won’t pay tax on it. If you choose to do so, with the remaining 75% you could purchase an annuity, take an adjustable income through drawdown or take what’s left as cash.
If you choose to take multiple, smaller lump sums from your pension over time, you can typically claim your 25% tax-free allowance on each withdrawal you make. For example, if you withdraw £1,000, £250 will not be taxed, you will only be taxed on the remaining £750.
Ready to invest in your future? Set up your personal pension account with True Potential Investor today.