Which is the best pension, Retirement will probably be the biggest thing you will ever need to save money for and choosing the best pension provider for your individual circumstances could save you thousands of pounds over time.
Decisions such as platform provider, fees and fund choices can all have a significant impact on your pension pot. At Woodward Financials, we use an active investment approach that has proven, in difficult market conditions, to give returns that would satisfy many investors that sought out the best pension performance.
What is a pension?
A pension is a place where you, and your employer (if your workplace is providing the pension) can pay into. You then get tax relief at your highest marginal income tax rate on each contribution, which helps you save for your retirement. To explain this in more detail:
Basic-rate taxpayers get 20% pension tax relief
Higher-rate taxpayers can claim 40% pension tax relief
Additional-rate taxpayers can claim 45% pension tax relief
In practise, this means that if you are a basic-rate taxpayer and contributed £100 from your salary into your pension, it would only cost you £80.
When you reach retirement age, you can draw money from your pension in several ways. The idea is that this pot of money should be sufficient to provide you with a comfortable standard of living until death.
There are limits to your tax-free contributions such as 100% of your earning in a year, £40,000 a year and the lifetime allowance currently £1,073,100
Many people assume that a pension is just something for older people to be concerned about, but this is entirely untrue. As with all investments, the earlier you start to save for your future, the longer your money is invested which means you can reap the reward of compound interest. As we all know, people are living longer and so it is more important than ever to ensure that you are setting aside sufficient provision for your retirement.
How does a pension work?
Here is a very brief overview of how a pension might work for you:
You pay money in and get a top up from the government at your highest marginal rate of income tax
The money within the pension is usually invested in the stock market
The money grows free of UK income and capital gains tax
You then have a pot of money to provide you with an income when you retire
Most pensions will allow you to withdraw up to 25% of the value of the pension pot tax free, with the remaining 75% being taxable.
Money within a pension cannot usually be accessed until you are at least fifty-five and this will rise to fifty-seven from 2028.
What different types of pensions are available?
What is a Workplace defined contribution pension?
Workplace pensions are opened for you by your employer who will pay into your plan for you. The minimum contributions are currently 5% for the employee and 3% for the employer. Payments into your pension are taken from your salary each month and you may also be able to top it up with additional payments if you wish.
What is a Self-invested personal pension (SIPP)?
Another defined contribution pension that gives you more flexible investment options and can be opened individually or for you through an employer. This type of pension is great for anyone who would like to manage their own investments and wants a broader range of assets to invest their money in.
What is a Stakeholder pension?
This pension is also a defined contribution plan that can be opened yourself or on your behalf by an employer. Stakeholder pension plans are aimed at people who want to save for retirement, but who have less to put away each month. Stakeholder pension plans must have a minimum gross contribution of £20 or less and they are specially designed to be accessible to everyone.
What is a Defined benefit pension?
This is a workplace pension more commonly known as a final salary pension. This type of scheme is quite different to defined contribution pensions, as they are guaranteed to pay out a specific and protected income for life.
A state pension is a regular income that people can claim from the government once they reach state pension age. Not everyone is entitled to a state pension and the amount you will receive depends on how many qualifying years of National Insurance payments you have made.
Can I transfer an existing pension?
It is a good idea to speak to a financial adviser before transferring a pension. This is because the pension transfer option that is right for you will depend on your specific situation and in some cases, transferring your pension may not be the most suitable option.
Financial advisers at Woodward Financials will be able to help you understand the bigger picture, make the right decision for you on your pension transfer and work with you to make sure that you are on track to meet your future retirement goals.
Woodward Financials were awarded best wealth management firm in 2021 and again in 2022 and have a team of advisers ready to help you make the most of your pensions.