Pensions can be a bit unloved – even neglected. Only one in five Brits know how much they have in their plan. And, according to a recent study by Unbiased, one in three don’t know how big a pot they’ll need to live on in retirement.
But when you consider the benefits they can offer and the difference a well-cared-for pension plan could make to your future, what’s not to love? With the Pension Awareness campaign taking place this month, it’s an ideal time to think about how to get the best out of your pension plan and feel more confident about your financial future.
Why should you love your pension?
A few key things can help make a pension plan a really good, tax-efficient way to save for your retirement.
- Pensions tax relief can make it cheaper for you to save into a pension plan. 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. Find out how this works in our two-minute pension tax relief Q&A.
- If you have a workplace pension plan, it’s not just you saving towards your retirement, your employer has to contribute too.
- With a workplace pension plan, it’s also easy to stay in the savings habit because payments usually come straight out of your salary.
- Any money paid into a pension plan by you (and your employer if you have a workplace pension plan) is invested. That means it will have the chance to grow and hopefully beat inflation too. This is even more important when you consider the record low interest rates that savers have faced in recent years. This article gives three reasons to consider investing But do bear in mind a pension is an investment. Its value can go down as well as up and it could be worth less than what was paid in.
For more about how pensions work and what they can do for your future, take a look at Get to know your pension and how to make the most of it.
Find out where you are and where you want to get to
Before embarking on any journey you need to know two things – where you’re starting from and where you want to end up. Your plans for retirement are no different. Yet we know a lot of people don’t know how much they have in their pension plan. And many don’t know how much money they’ll need to enjoy a comfortable life after work.
Finding how much you have in your current plan is easy – you can ask your pension provider for its value any time. If you’re a Standard Life customer, you can register for online services or use the mobile app, like 170,000 others, and check the value of your plan there.
What you can do to get the best out of your pension plan
Once you know where you are and where you want to get to, you’ll in a better position to decide if you need to save more to achieve that goal.
More than 10 million people have been automatically enrolled into a workplace pension. If you’re one of them you might have signed up to the minimum contribution to start with.
But if you now find you can afford to top up your pension or increase your regular payments, it’s worth considering. The cumulative effect over a long period could make a difference to your final pot.
The more you pay into your pension plan, the more you can benefit from tax relief.
There’s also something called compound growth to consider. This means that each year you have the opportunity to achieve growth, not only on the money you’ve invested, but also on the growth you might have already experienced. You can find out more here – Why investing could still be right for you.
Some workplace schemes will match what you pay in too – so as you pay more, your employer pays more. Make sure you know what you’re entitled to and are getting the best out of it for you.
If you have a Standard Life pension plan, you can review your payments by logging in. Or get in touch with your employer if you have a workplace pension.
Think about your pension investments
Where you choose to invest your money is another big factor in how much you could have in the future.
Even if retirement feels a long way off it’s never too early to start considering how involved you would like to be in choosing and managing your investments, how comfortable you are with investment risk and the importance of being diversified. You can find out more about your options on our investments page or in your scheme documents if you have a workplace pension.
If retirement is already on your radar, you can find out more in Choosing the right investment options on the road to retirement and beyond.
Reviewing regularly can have its rewards
Your pension is for the long haul. So it’s a smart move to check in regularly to see if you’re on track, but especially when your circumstances change.
Changed jobs or moved house? Make sure you keep the providers of your current and any previous pension plans up to date with your new details to avoid losing track of them. But if you do lose track of a pension plan, here’s how to find it.
Going through a divorce? A pension could be one of the biggest assets involved, so here’s what to consider.
Making or amending a Will? This won’t cover your pension so make sure your provider knows who you’d like to leave your pension savings to. You can find out more here.
And of course, your pension plan will never be more important to you than when you’re approaching retirement.
The information in this article is based on our understanding in September 2020 and should not be regarded as financial advice. If unsure, you should seek financial advice and there is likely to be a cost for 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 could well be worth less than what was paid in.
Standard Life accepts no responsibility for information contained on external websites. This is for general information only.