What is a pension and why is it important?
You often hear people talk about pensions in a very casual, matter-of-fact manner, as though they’re totally self-explanatory. But are they?
The basic idea is pretty straightforward. A pension scheme is a type of savings plan that helps you to save money for later life and retirement. It also has favourable tax treatment compared to other forms of savings.
It’s worth understanding the benefits of saving into a pension scheme, because your State Pension – while providing a foundation – may not be enough to live on.
For 2020/21, the maximum UK State Pension – even if you’re eligible – works out at just £175.20 a week or £9,110.40 per year, which is a lot less than most people hope to retire on.
A range of varied and attractive pension options have become available since the 2015 Pension Freedom reforms.
Some of the best-known options range from annuities to income drawdown, and from lump sums to SIPPs (Self Invested Personal Pensions).
But millions of people across the UK leave pension planning too late, and aren’t saving enough to give them the standard of living they hope for when they retire.
We would encourage people to start thinking about their pension and retirement planning as soon as possible to give them the peace of mind that they will be able to enjoy their retirement in comfort.
The advantages of regularly reviewing your pension
As we’ve established, your pension is the income you will live on when you finish. You’ve worked hard, so your pension plan should be working hard for you in return, to ensure that you’re able to live the comfortable lifestyle you deserve.
If your pension plan has been following the same investment path since day one, it could be that your retirement pot isn’t quite as substantial as you might have hoped – and won’t fund the kind of retirement you were hoping for.
So, this is where the benefits of regularly reviewing your pension plan comes into play. For example, you may find that what you currently pay in annual fees for a number of separate pension funds could actually be transferred into one single fund with lower management fees.
Or, if you are thinking of taking either an annuity or a drawdown at retirement, it is certainly advisable to search the whole market to find the best option. If you want to buy an annuity, perhaps another provider could give you a greater choice of options and – potentially – a higher income.
Other major considerations to take into account are whether your attitude to risk has changed or how much tax you will pay on your pension.
Our attitudes to risk vary at different stages of our life, depending on how close you are to retirement, how financially secure you are or how much growth you feel you might be able to achieve before you bring your career to a close.
What are the implications of tax on your pension fund? Reviewing your pension plan will allow you to plan for and mitigate against those implications, or there could even be great options you didn’t know about for managing tax in a way that suits you and your circumstances.
Please note that St James’s Place also manufactures some pensions options.
If you would like to discuss your pension options, please get in touch with us.
Email us at michael.sage@sjpp.co.uk or call 0191 731 4539 to book an appointment – we’ll be more than happy to help.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
