Personal pension schemes are a tricky topic – one that often confuses people to the point where they shut it out, forget about it, and miss out on the rewards later on.
To put it simply, a pension scheme is a long term, tax-free savings plan in which you can put savings for a time closer to your retirement.
On top of that, there are potential contributions from your employer and the government depending on the type of pension you contribute to yourself. Once you hit the age of 55, you can then withdraw whatever you like and when you want it.
Of course, this should not be confused with the State Pension, which is income of (£155.65 per week for qualifying citizens reaching the State Pension age after April 6, 2017) paid to you by the UK government in addition to an optional personal pension scheme.
So when should I start planning my pension?
The manner in which you should plan your pension depends on your age. For example, if you’re in your 20’s, you should first focus on starting to clear any existing debt and make sure that you can cover your current living costs. Pension savings aren’t something to be stressing over at this point, but anything additional you are able to save – no matter how small – into an ISA account is a good start at this point.
Those in their 30’s are likely to have a little more responsibility on their hands. After all, over two thirds of men in the UK are aged 30 and over when they become a parent, as are more than half of women becoming mothers. Meanwhile, the average age of first-time home buyers has now reached 30 as the leap onto the property ladder becomes that little bit larger.
With that in mind, you should certainly be looking to clear debts, control budget entirely, and start to establish some savings for the long term. In regards to a pension scheme, discover what is offered by the company you work for if you haven’t already.
Hitting your 40’s? At this point you ideally would have established your savings, but if you haven’t – get started. You should be looking to kill off existing debts or be well on your way to doing so, as well as starting to work out what sort of income you would like to be living on when retired.
Your 50’s are where things matter – after all, from the age of 55 you have the total freedom to take your pension money. Determine how much income you want when retired and roughly estimate a timespan for your retirement, while ensuring that your pension money is in the safest place possible. Don’t be investing it in risky shares, and instead invest in yourself – get as much money into your pension pot as possible.
While people in the UK used to be forced into retirement at the age of 65, there’s no longer a mandatory stopping point. Nonetheless, your working lifestyle is likely to be coming to an end when you’re in your 60’s.
If you’re not quite ready to give up work you may want to discuss a staggered pension with an Independent Financial Advisor (IFA) – that is, where you continue to work but still receive some pension money. Then there’s annuity, where you swap your pension pot for guaranteed regular income from insurance companies for the rest of your life. You can get a single-life annuity, which only covers you, or a joint annuity, which will see the money continue to be paid to your partner when you die.
Of course, there are far more options available for retirement – it’s one of the main factors confusing people across the nation. Nevertheless, for the long run it will be worth some time and dedication to work out the best option for your personal situation.