Pension Awareness Week is a annual five-day engagement event, aiming to empower people to better understand and value pensions, and help you plan for your future.
To start the week off, here’s my ‘top tip’ video…
And more Pension Awareness Week ‘Top Tips’…
Start your pension early
- The sooner you start contributing to a pension scheme the better. Consider a personal pension plan as a savings scheme that cannot be drawn on until the scheme holder attains age 55 (57 from 2028), so the longer you pay into it, the longer the money has to grow through contributions and investment returns. Contributions qualify for Income Tax relief (subject to certain limits) so for every £8 contributed by the scheme holder, the Government contributes a further £2.
Set-up pensions for children
- Parents or legal guardians can set up a pension scheme for a child as soon as that child is born. Once the scheme is open, grandparents or anyone else can also contribute. The limit on contributions to a pension scheme for a child are currently £2,880 per year, and the tax relief added by the government makes this up to £3,600. Control of the scheme passes automatically to the child once they turn 18, but they cannot draw on the funds until they reach the minimum pension age.
Make regular contributions
- Pension funds are invested across a variety of markets, the value of which can of course go down as well as up. It is usually advised therefore that regular contributions are made to a pension scheme so that investment units are purchased “cheaply” by the fund when market values are lower.
Consider your options at minimum pension age
- Once you reach the minimum pension age (currently 55, but 57 from 2028), you may take up to 25% of your pension pot as a tax-free lump sum. You may then continue to make contributions to your pension and get tax relief on them, provided that you are within your contribution limits and are still aged under 75. However, once you take any taxable payments from the rest of the fund, the maximum you can contribute to “money purchase” pension scheme will be limited to £4,000 each year.
Consult a qualified financial advisor
- Although the Government is keen that everyone should save for their retirement, the rules around pension saving can become quite complicated and advice on pensions is categorised as regulated financial advice. You should always therefore consult an appropriately qualified financial adviser before making any decisions about your pension savings. They will ensure that you avoid the pitfalls and maximise the benefits!
Automatically enrol in a workplace pension scheme
- All employers are obliged by law to offer a workplace pension scheme to their employees. There are exemptions for some employees and employees may choose to opt out of the scheme, but it is illegal for an employer to pressure them to do so. When employees are “automatically enrolled” in a workplace pension scheme, the minimum contributions are 3% by the employer and 5% by the employee, on a band of earnings between £6,240 and £50,270 per year (before tax).
Consider salary sacrifice arrangements
- Employees may choose to contribute to their pension scheme through salary sacrifice arrangements. These can be really tax-efficient for both the employer and the employee, but there are a number of considerations so appropriate professional advice should always be obtained.
I hope you find my ‘top tips’ helpful. As always, please do get in touch with me, James MacDonald, should you have any questions at all.
Throughout the week, we will be sharing:
- More information from Gina Acosta, Senior Payroll expert at Ecovis
- Advice from our guest blogger Roy McLoughlin, Associate Director and Pension expert at Cavendish Ware, and
- Information on free webinars and live shows hosted by Pension Awareness.
Please note, you should always seek advice from an appropriately qualified professional before making any decisions on pension planning.