Many people worry about their retirement, when they will no longer be supported by a regular income earned through work. That’s why it’s so important to think about pension plans at all stages of life, to make sure you’ll always have enough money to do all the things you wish to during your retirement.
The recent financial crisis demonstrated, among other things, the importance of choosing a reliable and financially stable pension plan if you hope to receive a good rate of return on your investment. Many companies offer pension schemes as part of their employee packages, which often see employers matching contributions made by employees as an incentive to put more money aside for their future. From 2012, all UK employees aged between 22 and the minimum state pension age will be automatically enrolled in company pension schemes, helping them to safeguard their future finances.
If you don’t work for a company that offers a pension scheme, however – or if you’re self-employed or unemployed – there are still various pension options to choose from, including personal pensions. Although these will not usually benefit from employer contributions, your pension provider may claim tax relief on your behalf from HM Revenue and Customs, allowing you to earn an additional 20 per cent on your taxed pension.
To avoid tax altogether, you may choose to investigate tax-deferred saving options, such as annuities. These can pay out fixed amounts or lump sums once they mature as you reach retirement age, and offer a wider range of choices for investors. Stakeholder pensions are another cost-effective form of saving, although the amount you’re able to invest each year is usually capped, and there are fewer investment options available.
For the greatest freedom of investment, many people choose self-invested personal pensions (SIPPs), which can be ideal for investors with greater financial expertise, or larger pension funds. As well as investment trusts, SIPPs holders can invest in areas such as commercial property, insurance funds, insurance trusts, shares and unit trusts.
Opening a pension account is a big decision, and one that could greatly impact the amount of money you’ll receive during your retirement. It can therefore be extremely useful to consult a financial adviser to discuss your options and seek pension advice before making any decisions, or speak to your pension provider to discover the different types of pensions available and find the one that’s best suited to you.