PENSIONS ARE NOT BORING!

Martin Lewis agrees! If you’re a viewer of The Martin Lewis Money Show on ITV you’ll know he recently dedicated a whole programme to it. I enjoyed being one of his expert panel on that episode. Here are some of the key facts about pensions that were shared on the show.

For many, the thought of planning for retirement, which could be some way off, and understanding pensions can be a daunting and boring task. Getting to grips with pensions is, I recognise, hard, legislation has changed so much over the years and negative stories as to whether pensions are worth it, it can be off putting, but absolutely pensions are worth it!

Pensions are a brilliant tax efficient savings vehicle for the future and can play a hugely beneficial role in your overall financial planning.   So here are my top 5 reasons why pensions are not boring and have a role to play in your financial plan!

Tax relief – One of the best features of a pension, you get tax relief on your contributions, meaning that you save tax and get more into your pension! For a basic rate tax payer that’s 20% tax relief directly into your pension, so for every £100 you put in, the actual amount is £125 so in other words receiving 20% tax relief is like having a 25% boost to every contribution you make. For higher rate and additional rate taxpayers you can claim the additional 20% or 25% relief through your self-assessment tax return. The amount you can pay in and get tax relief on, is capped, depending on how much you are earning but typically you can pay in up to £40,000 each year.

Tax free cash – Another fabulous feature of pensions is that when you do eventually get to retirement and want to take money from your pension you can take up to 25% of the fund value as tax free cash. This can really be useful for paying off your mortgage, replacing your car, gifting to family if you’re in the position to be able to do so, or any other big expense you have in the early years after stopping work.  

Investment choice – Pensions don’t have to be inherently risky, there is so much investment choice available through pensions nowadays, so you can ensure that your investment strategy within your pension is aligned to your goals, time horizons and risk profile. Your investments also grow tax free!

Flexibility – Long gone are the days where you had to buy an annuity with your pension pot. Through what is known as income drawdown, there is a lot of flexibility as to how you can take money out of your pension to suit your lifestyle in retirement. The tax free sum we mention above can even be taken out in stages if that suits you best!

Pass it on – And if you don’t use all your pension in your lifetime, all is not lost, you can pass it on to your beneficiaries for them to use as part of their retirement planning without any inheritance tax liability.

If you are in the camp of pensions are boring, or want to know more, do get in touch, I promise you the team here at CP Wealth can demystify pensions. We’ll work with you to put in place a financial plan so that you can make life count now and in retirement.

Past performance can’t guarantee what investments will do in the future. The value of a portfolio can go down as well as up, so there’s a chance you’d get back less than you put in.

This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action.

This information represents our understanding of law and HM Revenue & Customs practice as at 24/02/2022 and may change if legislation changes.