Planning for your retirement can be daunting. But the sooner you take steps to secure your financial future, the more certain you will be of a comfortable retirement.
What is a private pension?
Alongside your state pension, you can also begin saving for a private pension. They are a way for you and your employer to set money aside which can be accessed when you are older. The state pension is a regular payment made to those above pension age. How much you get depends on your National Insurance contributions, the maximum current amount is £179.60 per week.
To guarantee you an adequate income when you retire, many people choose to invest in a private pension. Pension providers invest pension funds in investments hoping to generate profit. You should be aware that the final amount of your pension can go up as well as down, depending on the level of risk of the investments.
Most are defined contribution pension schemes; your employer may provide one or you can start one yourself with a provider independently.
Do I need a UK private pension?
No, but it is advisable to consider starting one if you have not already done so.
The main reason is because you can benefit from tax incentives. You can also generally access 25% of your pension pot tax-free. Most pension contributions are tax free, as they are taken out of your salary before tax is applied.
I am interested in starting a UK private pension, what should I do?
It is worth calculating how much money you need for your retirement. Citizens Advice estimates that the average retirement lasts between twenty and thirty years.
If you have an employer, are over 22 and earn more than £10,000 annually your employer should have automatically enrolled you in your workplace pension scheme. Some employers will offer workplace contributions, where they pay a certain amount into your pension pot, alongside your direct contribution from your salary.
If you are self-employed, or want to top up your pension savings, you can set up a personal or stakeholder pension. To do so, you can seek advice from a financial advisor or approach a pension provider directly. The sooner you start paying in, the sooner you can benefit from savings for your retirement.
Are there other ways to save money for retirement?
Yes, some people may invest in property or other assets. However, due to the tax incentives and the contribution of your employer (if eligible) private pensions remain an attractive option.