Whether you’ve just started out saving or you’re a few years down the track, it’s understandable that you may not feel 100% confident about your pension plan and how to get the best from it. After all, the time when you’ll need the money can feel like a lifetime away.
Maybe you signed up to your pension plan through your job like millions of others. In 2019 over 88% of employees who were eligible for workplace pensions had signed up to this tax-efficient way to save for their retirement.
However, in our survey this year, nearly a quarter of people didn’t know who was providing their workplace pension. Almost half said their pension pot doesn’t feel like their money and half hadn’t checked its value in the last three months.
Opening a pension plan, and saving into it as much as you can for as long as possible can be a really positive step. Your pension savings are likely to be your main source of income in retirement. So understanding how it works and taking some small steps now to make the most of it could give you even more choice and flexibility later in life.
Here’s what your pension can do for you and what you can do for it.
1. Saving for your future can be a team effort
It’s easy to get into the habit of saving into a pension plan – especially if you have a workplace plan where the payments usually come straight from your salary.
The other big benefit of a workplace plan is that your employer has to contribute to it too. In most cases, this is at least 3% of your salary.
What you can do: It’s a smart idea to check if you’re taking full advantage of what’s on offer as some employers may contribute more than the minimum required. If you’re not, you’re passing up on what could effectively be ‘free money’. Some also offer matching schemes where the more you pay, the more they pay.
2. Understand the tax breaks your pension plan can offer
Pension tax relief means that when you save into your pension plan the taxman chips in too. The tax relief you get is based on the income tax you pay. So for example, if you pay basic rate income tax, you get 20% tax relief. This means it costs you £80 to save £100 into your pension plan. If you’re paying higher rates of income tax, saving can cost you even less.
Not all pension plans work the same way when it comes to how you receive tax relief. If you have a workplace plan, you may want to check how it could work for you.
What you can do: Find out more about what tax relief is, how much you can get and some tips to help you make the most of your pension plan by listening to our 2-minute tax relief Q&A.
3. Keeping on top of things has never been easier
These days, you can do so much online. Your pension plan is no exception. As a Standard Life customer, registering for online services allows you to check how much your plan is worth, update personal information and even switch where your pension money is invested in some cases.
And if you get the Standard Life app you can do a lot while you’re on the go, including topping up your pension plan and viewing the performance of the funds you’re invested in.
One important thing to keep up to date is the retirement date you’ve set on your pension plan. Make sure this date is still in line with your plans to give you the time you need to save for the lifestyle you have in mind.
4. Investing in your future
Saving into a pension plan now is an investment for your future and life after work. The money you or your employer pays in each month is invested to give it the chance to grow over time. Although, as with any investment its value can go down as well as up and you could get back less than you paid in.
Try our pension calculator if you want to get an idea of how much your pension pot could be worth when you come to retire and if you’re saving enough.
Where your money is invested can have a big impact on how much you could have in retirement. You can review where you’re invested and how these investments are performing by logging into your account.
What you can do: It’s important to regularly review your investments to make sure they’re right for you. You can find out more about pension investments here. Or if you’re starting to think about your retirement options, read Choosing the right investment options on the road to retirement
5. Flexibility when you need it
Pension plans can offer greater freedom and flexibility than they used to, so when the time comes to start thinking about accessing your money, you’ll have plenty of options. Usually you can access money from a modern, flexible pension from 55, though this age may change in future.
Some people choose to take some of their money but continue to work, some take all of their money and retire, and others leave their money untouched – perhaps to pass it on. You can also choose a mix of options.
Not all pensions will offer every option, so it’s important to know what yours can do, so you know whether it’s right for you. Your pension provider can give you more information on the features that are important to you.
What you can do: Read How to set your pension savings free for more on how and when you can take your money. Or if you want to know how you can pass on pension savings – sometimes tax efficiently, read our guide.
The information in this article is based on our understanding in August 2020 and should not be regarded as financial advice.
Laws and tax rules may change in the future, and your own circumstances and where you live in the UK will also have an impact on tax treatment. Please remember that the value of investments can go down as well as up and may be worth less than was paid in.