Is property a better bet than a pension for your long-term financial future? Despite a senior official at the Bank of England suggesting that was so, you can bet that anyone who ignores the benefits of a pension will rue the day in the future.
Bear in mind that a pension is simply a savings scheme. It’s traditionally a way to save money for your retirement, although recent changes mean the cash in your pension pot can now be taken before you stop working. In other words it’s a reasonably flexible savings opportunity that you can use to give yourself choices in later life. Why not use ISAs or other easier-to-understand deposit accounts? Because a pension can offer you much more.
It’s a reasonably flexible savings opportunity that you can use to give yourself choices in later life.
Frankly it comes with some great tax benefits. The government gives tax relief on your pension contributions which gives them a great boost – 20 per cent if you’re a basic rate taxpayer and 40 per cent if you’re a higher-rate taxpayer. It means that for every £1 that goes into your pension you only need to put in 80p if you’re a basic rate taxpayer and 60p if you pay the higher rate. Free money from the government? Not quite. In return for the tax break you agree to lock up your cash until you reach at least 55.
Even better, you could be in line for extra cash in your pension pot from your employer. By law, companies have to offer workers a pension scheme. They tend to match staff contributions so for every £1 you put in, your company is likely to do the same.
That effectively turns every 80p you stash away into £2 added to your pension pot. For higher rate taxpayers the deal is even better, with every 60p turning into a £2 contribution. And the more you put into a pension, the more your company will add, up to certain limits.
Most pension funds will offer a choice – so your cash is put into property funds or government bonds or something more risky, for instance.
Some firms – admittedly quite rare ones – even have non-contributory schemes, which means your firm will make all your pension contributions.
It all points to the fact that if you’re not saving into a pension, you’re missing out. Contact your human resources department to get more details about the pension scheme that your company offers. Ask how much you can contribute and how much your company contributes. It’s also important to ask how your money is invested.
Most pension funds will offer a choice – so your cash is put into property funds or government bonds or something more risky, for instance. If you can’t decide, there is usually a default option but it’s worth talking to a professional adviser on your options.
If you’re self-employed or a contractor you will need to set up a personal pension. If that’s the case an independent adviser will be able to help steer you in the right direction. Go to www.unbiased.co.uk for links to advisers.
But don’t just ask about investment opportunities for your retirement nest egg, it’s important to also check on the charges as high charges can have a serious impact on your savings.
Depending on your age now, you should be planning to have saved enough by the time you reach 50.
Bear in mind that a pension is simply a savings scheme set up for your future. So YOU need to make decisions about where your money goes, and then review that regularly – every 12 months or so. Depending on your age now, you should be planning to have saved enough by the time you reach 50 or so to give you options to ensure a financially secure retirement.