Confused about pensions? Here’s what you need to know
Confused about your pension and how much you should be saving? Here are some expert tips.
More than three-quarters of employees across the UK were members of a workplace pension scheme last year – a new record high, official figures reveal.
According to the Office for National Statistics (ONS), 77% of employees were in a workplace pension scheme in 2019, marking the highest membership rate since comparable records started in 1997.
Automatic enrolment into workplace pensions, which started in 2012, has had a huge impact in getting people into the habit of saving for later life. And younger generations appear to have caught the savings bug, with 2019 seeing 80% of 22-29-year-old employees saving into a scheme – a massive leap from 31% when auto-enrolment started.
But while many are now saving for their long-term future, pensions can still be tricky to understand.
Here’s some tips from Jamie Jenkins, head of global savings policy at Standard Life, for getting to know your pension better…
What’s the difference between pensions and other savings?
A pension is designed specifically to provide an income in retirement. Money is paid into a pension plan and invested by your pension provider, using your investment instructions, or you can let them make that decision for you. Once you reach your chosen retirement age you can decide how your money is paid back to you.
A big difference between a pension and other savings products is that you receive some tax back on the money saved into your pension, that would have otherwise gone to the Government.
How much you get when you’re ready to take your pension will depend on how much you save, how your pension investments perform and how long you’re invested for.
What types of pensions are there?
Starting with your state pension, how much you receive depends on your national insurance record, which you can get an estimate of at gov.uk/check-state-pension.
If you also have a workplace pension, contributions will be taken directly from your salary and put into a pension plan, arranged by your employer. Government contributions are added in the form of tax relief.
Another option is a private or personal pension, where you choose the provider and arrange for your contributions to be paid directly from your bank account.
Why should I keep saving into my workplace pension?Effectively, you and your employer are putting part of your salary away now, tax-free, with a view to you being able to enjoy more in the future. A good way to look at this is that your workplace pension is essentially deferred pay for your future self.
What’s in my pension?
Pension providers usually offer a range of funds where your money can be invested. If you belong to a workplace scheme, and you don’t say how you want your contributions invested, your money will automatically go into a ‘default’ fund set up by the provider. You want your investments to grow, but bear in mind investments can go down in value, as well as up.
When can I use my pension?
The flexibility of private pensions means you can usually start taking money from age 55.
How do I decide when to take money from my workplace pension?
When and how you take money from your pension is a big decision – it can affect how long your pension pot lasts. The pension freedoms introduced in 2015 allow people aged 55 or over to take their pensions however they wish. The first 25% of pots is tax-free.
Before you take any money out though, consider if you really need to, and remember that you don’t need to take all your tax-free cash in one go.
How much should I be saving into my pension?
Think how much you may need in retirement. Consider how much you earn currently – perhaps as a household, if you have a family – and what you would need in retirement to replace that income.
Keep in mind that you may have a mortgage which will be paid off, and children who are no longer dependent. Then add in what you might get from the state pension or any old pensions that pay a guaranteed income in retirement.
There is no precise answer as to how much you need to save, but many experts suggest 12-15% of your salary is a good target to aim for.
Above all, think about what you can afford to save. Your future self won’t regret it. And remember, depending on how near retirement you are, it might be worthwhile getting expert advice from a financial adviser.
The Press Association
Latest posts by The Press Association (see all)
- 6 of the best crime novels of all time to escape into - January 18, 2021
- 6 ways to rewild your garden and help save butterflies - January 18, 2021
- Baked Fish and Vegetable Parcels - January 18, 2021
- 8 things you’ll only know if you grew up without social media - January 15, 2021
- 4 nifty tips for living more sustainably - January 15, 2021
Leave a Comment!
Community Terms & Conditions
These content standards apply to any and all material which you contribute to our site (contributions), and to any interactive services associated with it.
You must comply with the spirit of the following standards as well as the letter. The standards apply to each part of any contribution as well as to its whole.
be accurate (where they state facts); be genuinely held (where they state opinions); and comply with applicable law in the UK and in any country from which they are posted.
Contributions must not:
contain any material which is defamatory of any person; or contain any material which is obscene, offensive, hateful or inflammatory; or promote sexually explicit material; or promote violence; promote discrimination based on race, sex, religion, nationality, disability, sexual orientation or age; or infringe any copyright, database right or trade mark of any other person; or be likely to deceive any person; or be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence; or promote any illegal activity; or be threatening, abuse or invade another’s privacy, or cause annoyance, inconvenience or needless anxiety; or be likely to harass, upset, embarrass, alarm or annoy any other person; or be used to impersonate any person, or to misrepresent your identity or affiliation with any person; or give the impression that they emanate from us, if this is not the case; or advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse.
Nurturing a safe environment
Our Silversurfers community is designed to foster friendships, based on trust, honesty, integrity and loyalty and is underpinned by these values.
We don't tolerate swearing, and reserve the right to remove any posts which we feel may offend others... let's keep it friendly!