We all hope to earn a good level of income through our working lives but at some point in the future we will start to wind down and ultimately retire completely. Ideally we would want to continue to enjoy a relatively good standard of living but we need to remember retirement is the longest holiday of our lives.
There are a number of ways of replacing earned income the most obvious being the state pension. Do you know what you what amount you will receive in state pension and at what age? Have you requested a state Pension forecast?
One way of making provision is to make long term savings into a personal pension plan and this method has a number of appealing benefits:
- Tax efficient growth – a personal pension plan is essentially a tax-favoured investment vehicle where the invested funds are not subject to income tax or capital gains tax thus maximising growth
- Tax Relief on Contributions – any contributions made on a personal basis are eligible for income tax relief, potentially up to your highest rate of tax paid, which makes saving into a pension very attractive for higher rate tax payers.
- Employers making contributions into personal pensions can also benefit from tax relief.
- Tax Free Cash – from age 55 onwards you can withdraw up to 25% of the accumulated pension fund's value as a lump sum which is not subject to income tax or capital gains tax
- In our opinion Personal Pensions should form at least part of your future retirement income. To what level depends on a number of factors including your employment status, your current and likely future tax status and consideration of other forms of retirement income.