Why review your pension?

As our health improves, we’re living longer. In just 15 years from now, average life expectancy in the UK is expected to be about 86 for men and 87 for women, according to research by the UK Medical Research Council and Public Health England. That means a much longer retirement, so setting up a new pension as early as possible to help ensure you have a reliable income to look forward to, is becoming even more important. Paying into a pension means you have less to spend now, but it’s a very sensible investment, and a much smarter way to plan for your financial future than just putting money aside, or into a savings account, as and when you have some spare cash. In fact, by doing that, you will miss out on the unique benefits that getting a new pension can offer you. That’s because taking out a new pension gives you real tax advantages, which means that your money will grow faster than pretty much any other way. This is how it works. Get tax relief on your new pension Because the government wants to encourage us all to save for our retirement, it will give you tax relief on the money you pay into your new pension. In other words, the government will top up your pension contribution by the level of income tax that you normally pay. So, if you pay tax at the basic rate of 20%, then for every £100 that goes into your new pension each month, you will pay just £80, and the tax man will put in the other £20. The same applies if you’re a non-tax payer. If you pay 40% tax, then you will pay £60 and the tax man will pay £40. If you’re on the highest 45% rate of tax, for every £55 you pay in each month, HMRC will make up the other £45. So, if you are considering a new pension, this additional contribution will make a significant difference to your financial situation later in life. And as any growth in your pension savings is also tax free, taking out a new pension is a win-win situation. Pension planning – withdrawing money Once you’ve built up your pension fund, you can use it to get a regular monthly income, or to give you a lump sum of money, or a combination of both. If you want to maximise the amount of money you get each month from your pension, you should leave your pension fund untouched for as long as possible. However, if you want to enjoy the money that’s in your pension fund, then as of April 2015 that’s become much easier, as changes in the law mean you can get at all of your pension fund when you reach 55. You can take out the first 25% as a tax-free lump sum, but will have to pay income tax on the rest at your marginal rate, which is the tax band you fall into for that year. If you’re thinking of accessing some of your pension, we’re happy to provide impartial advice on the tax implications, so you can make an informed decision. Pension planning for inheritance With good pension planning, you can also pass on your pension savings to your family and friends after your death, free of any inheritance tax. Again, we can provide impartial advice on how best to do this, so that you don’t encounter any problems. There are many complex rules and regulations that apply to the tax treatment of your new pension options, so it’s essential you get advice from experienced professionals like Profile Pensions to make sure your pension planning really is tailored to your individual circumstances.