Pension Basics: What you Need to Know

Planning for retirement can be stressful and time-consuming, not least because you have to make sure that you have all the necessary measures in place to be able to sustain yourself once you stop working.

Pension schemes are designed to give retirees a decent income for their post-work life. As such, they are incredibly important for anyone planning ahead for retirement, and should be well researched. Here are some pension basics.

Employers match contributions

Workplace pension schemes usually involve an employee paying a contribution into their pension pot each month, which is then matched by their employer. This way, the employee is getting a 100% return on their investment straight away, which can help them build a significant amount of money in the long run.

Turning down an offer like this is the same as turning down free money, so a workplace pension should always be used if it’s on offer (although most people are automatically enrolled now anyway). You can usually start withdrawing from your pension fund once you reach the age of 55.

Tax-free lump sum/annuity

When you do retire, you will have the option of withdrawing a tax-free lump sum of up to 25% of your total pension fund, which will probably equate to a very significant amount of money. You can withdraw more, but you will pay tax on any amount over 25%.

Many people also purchase an annuity in exchange for a portion of their pension pot or the entire pot. This guarantees them a fixed income for the rest of their life or for a specific period if it is a fixed-term annuity.

Self Employed

It’s not just regular workers who have access to an effective pension scheme. If you are self-employed, then your best bet for retirement saving would be through a private pension, such as a SIPP (Self-invested Personal Pension).

Offered by specialist providers like Bestinvest, SIPPs allow you to make your own contributions, which are then subject to the same level of tax relief/top ups from the Government. You are also given a much greater choice of where and how your money is invested. However, you should make sure a SIPP is suitable for you before opening an account.

Pension planning need not be a headache, just so long as you are brushed up on the facts. State pensions could be disappearing in the not so distant future, so the sooner you start planning, the better.


Please enter your comment!
Please enter your name here