Pensions

Once you have established employment it would make a great deal of sense to sort out your personal finances. Once your bills have been paid you would ideally look to investment for the future. In classic financial planning terms, some short term savings perhaps a Deposit Account or Cash ISA (Individual Savings Account) would allow you to accumulate money to cover any emergencies.

You may then look to savings for the long term. Again in classic financial planning terms, pensions can provide the ideal solution. Your new employer may offer a pension scheme, if so; consider this as often they will contribute to it.

In order to compare the option of joining an employer’s pension scheme fully you may need to seek independent financial advice. You could also visit the following website for more information – www.moneymadeclear.fsa.gov.uk/pensions

Broadly, you employers offer one or more of the three following types of pension:

If your new employer does not offer any form of pension arrangement you may wish to consider either Stakeholder or Personal Pension. Seek independent financial advice here and also, ask your new employer whether he will consider contributing! There are some efficiencies here.

After April 2010, you will be able to retire after age 55. Some Occupational Pension Schemes however may not facilitate this. There is without doubt a compelling argument for all of us to save for our own retirement. It is a recognised fact that like most western countries, due to demographic changes the UK economy cannot support the State Pension it it’s current form. Announcements have recently been made to extend State Retirement Age in future years. Do we really want to work for ever?

There are considerable incentives available for pension saving. For personal contributions, these are made net of basic rate tax relief, currently 22%. Higher rate tax payers may claim the further 18% via their tax return.

Once monies have been invested in your any of the pension types detailed, they accumulate in a tax efficient environment. To expand on this, all profits made within approved pension funds are free of tax with the exception of dividends arising from equity funds which now face Witholding Tax. If you chose a pension fund investment strategy avoiding equity holdings and instead chose say property owning funds, then this would then be a tax free investment.

When you decide to take your benefits, you may realise 25% of your fund as a tax free lump sum subject to a current overall fund limit of £1.5m. This overall fund limit is however set to rise.

The tax efficient way of saving for retirement via pension therefore is potentially very attractive. You earlier you start the earlier you may retire with a nice lump sum! How bad is that?