Saving for Retirement
Saving for your retirement is one of the most important financial
plans you can make.
In simple terms it is accumulating assets during your working
life that you can utilise to provide an income when you stop
You can choose to save in a pension scheme and/or a savings
plan, but whatever you decide, you'll want your funds to grow
and be worth as much as possible in the long-term. You may
also have other assets that you aim to help you financially
in retirement such as a 2nd property or the sale of a business.
Types of pension scheme
Pension schemes are a form of saving for retirement. There
are several different types of scheme:
Your State Pension is based on the number of qualifying years
you have, calculated on the National Insurance contributions
you've paid, have been treated as having paid or have been
You can claim it at State Pension age – 65 for men,
60 for women (changing to 65 by 2020) – or you can choose
to delay claiming it.
Company pensions are set up by employers to provide pensions
for their employees on retirement. If you are able to join
one, it's worth considering as most people will be better
off in retirement than if they had not joined.
Schemes will normally allow you to start taking your pension
from the age of 55 and to take
part of your pension fund as a tax-free lump sum.
There are 3 types of personal pensions. Stakeholder, Personal
and Self Invested. They all perform the same function, with
the main differences between them being the investment choices
Tax relief on pensions
Most contributions to pension schemes attract tax relief.
For example, for every £80 that goes into a basic-rate
tax payer's personal or stakeholder pension, the government
puts in a further £20. Higher rate taxpayers can claim
the extra tax back.
Tax-efficient savings and investments
There are other tax-efficient ways of saving and investing
money for retirement.
Individual Savings Account (ISA)
With an ISA you do not get tax relief on the contributions
you make but you do not pay tax on the interest or most dividend
income earned, or on 'capital gains' if you later sell the
investment at a profit.
National Savings and Investments (NS&I)
NS&I offers one of the most secure ways to save and invest
money because it's backed by the government. Some schemes
pay interest that's taxable, while others are tax-free.
Some NS&I schemes are longer term investments, that may
be suitable for saving toward your for retirement
Existing pension schemes
Many individuals will have accumulated a number of pension
schemes based upon previous employment. All these schemes
should help towards your overall retirement income.
These Schemes should be reviewed in light of a number of factors
including your current circumstances, plan guarantees, potential
investment returns, charges and changes in legislation.
It may be appropriate to transfer the benefits to your current
Advice from a suitably qualified adviser should be taken when
discussing pension transfers.