Pensions. A concern for the older generations? Another deduction from your pay
packet? Or a golden opportunity to secure your future?
The world of pensions can be an
overwhelming and confusing affair to the eyes of the unknown. With so much
emphasis on saving now, it can sometimes be impossible to think of saving for
Whilst the current economic
climate is somewhat unstable to say the least, the new NEST Pension Laws
implementing the auto-enrolment of employers and their employee’s onto singular
workplace pensions aims to revitalise the way we save.
New NEST Pension Scheme
Whilst many may already have
pension schemes in place, a resounding number of UK adults are still not
contributing to their pension; fewer than one in three in fact! Which raises
the question; why is this so?
The thick and thin of it can be
traced down to the simple fact that many people are unsure about the purpose,
function and benefits of pensions in both the short and long term. So what do you need to know?
- What is a Pension?
In Lehman’s terms, a pension is
simply a ‘pot’ of money that you, your employer and the Government contribute
to in order to secure your finances for the future.
There is no involvement from the
taxman and it means that, come your retirement, you can draw money from your
pension or gain annuity, a method of selling your savings to an insurance
company for a regular income.
- Why should I set up a pension?
The real selling point, apart
from saving for the future, is the tax relief. Depending on your rate earnings,
you will receive an automatic percentage back. You can claim an additional
percentage depending on your rate earnings.
This percentage you receive back
is worked out with the earnings on your contribution amount before the tax was
deducted, in which you will receive the difference between your contribution
and your pre-tax earnings.
- Auto-Enrolment & NEST Pensions…What’s
As of October 2013, employers
will be obliged to offer employees access to an auto-enrolment NEST Pension
scheme. This is a recent introduction by the government to ease the strain on
State Pensions as well as making people aware of the importance of saving for
This auto-enrolment scheme emphasises
the need for employees to save and is aimed at providing a sole pension. This
pension stays with you throughout your employment career even if you change
job, become self-employed or stop working. Simple.
- How much should I contribute into my pension?
How much you and your employer
will contribute will depend on your annual income. 2% (of which 1% is from your
employer) must be paid of your qualifying earnings (salary, overtime, bonuses
etc) if you earn £5,564 or more, although these figures are annually reviewed.
Ideally, you should be
contributing more than the minimum requirements in order to gain the benefits
later on in life. The sooner you contribute, the longer your money has to grow.
Whilst you are encouraged to put away more for the future, it is important to
ensure your current financial security so make sure you find the right balance.
- Still unsure? Call in the professionals!
With changing percentages,
fluctuating rates and a variety of saving options, it can be difficult to
understand just how to look after and gain the most from your hard-earned
money. So, when pensions are concerned, make sure you approach an established
and specialist financial advice firm and with their experience and expertise,
you can begin to save for the future.
When it comes down to it, saving
for your future really should be one of your top priorities. The introduction
of these new pension schemes, along with the emphasis on making employers and
employees aware of the importance of early pension planning, really is a step
in the right direction as we look to repair our economy and ensure our futures.
post was composed by Phil Warrington on behalf of Guardian
Wealth Management; a reputable and established financial advice company
who specialise in offering advice on a variety of pensions as well as financial
planning and investment.