Pensions & Retirement
They say that human beings stand out from any other species by our ability to think and plan for the future.
While that might be true, almost 60% of working individuals find it challenging to think about or prepare for the future, as they’re continuously caught up in the day to day tasks and toil. Heck, it’s daunting enough to plan on what you need to eat for lunch, let alone plan for the summer vacation you want to go on in six months. How on earth are you supposed to think about something as distant as retirement?
Well, it’s proven that thinking in advance or acting on those thoughts is key to having a comfortable retirement. The central concept, when it comes to retirement and pensions1, is saving cash for future purposes. They’re both critical aspects of a successful and effortless post-work life.
That said, here’s a comprehensive guide to help you learn about the best pension schemes and all the details you need to know about having a successful retirement.
Types of PensionsThere are three main types of pension plans:
- State pension
- Work pension
- Personal pension
State PensionsThese are mostly regular payments that you can claim when you reach the state pension age2. The amount of cash you get depends on your National Insurance Contribution, with the government influencing your pension payments through the credits you’ve accrued in your life. State pensions are the most significant benefit sector of spending by the Department for Work and Pensions.
- When you defer your pension, you’ll automatically increase your overall rate of return by 1% every five weeks. When you do the math, this comes out to over 10% every year – an extremely profitable return without any risk.
- Nothing and no one will stop you from toiling past the legal pension age. Those additional years of work will not only produce extra years of a profitable salary-based income, but it’ll also continue to increase your overall insurance contributions.
ConsBy deferring your state pension, you’ll get less money upfront. So, if you need the extra funds, you won’t get the chance to reap the rewards of deferring your pension.
Workplace PensionsA workplace pension is organized through the employer. Thanks to the Auto Enrolment legislation3, it’s not mandatory for your employer to set up a pension plan for eligible staff members, either through their scheme, an independent pension provider or through a government-backed project. Your contribution is directly relative to your monthly income, and you get a tax relief of 20% on your donations.
- The workplace pension plan offers you control of how much money you’ll spend once you decide to retire. Your boss also contributes a substantial amount to your pot.
ConsTaking the workplace pension plan, to some extent, decreases your take-home pay package.
Personal PensionsPersonal pension plans are a defined contribution pension4, meaning that the amount you receive when you retire is dependent on how much you’ve stashed into your pension pot and how well your investments have been performing. You also select the amount you pay into your personal pension, and your lender claims tax relief and adds it to your pot. They’re an ideal option for those who can’t access a company pension plan – like the self-employed. You can get a fixed personal pension pot upon retiring, spend it on an annuity plan, or choose an income drawdown. The lenders offer you this plan alongside a state pension.
- It’s perfect for anyone who doesn’t have a workplace pension, like the self-employed or people who take time off to take care of their children or ageing relatives.
- You get 20% tax relief5 if you’re a loyal and basic-rate taxpayer.
ConsPersonal pensions don’t offer you the benefit of having a bonus of extra money contributed by an employer, and they can, at times, charge you a higher management fee.
Steps to Take Before Going into Retirement
You Must Run the Numbers
- What’s your plan after retirement?
- Does it involve going on an expensive vacation, new hobbies, or moving into residential care?
- Are you planning on moving abroad or in your kids?
- Will you have higher health care costs or need live-in care?
- Are you planning on helping your kids pay tuition fees, settle their car loans, or pay off their mortgage?
- Do you plan on giving large gifts to your friends and family?
Things You Should Note About Retirement
Have a Plan and Stick to itThe first thing you need to do is to create a steady financial retirement plan. You have to then (the harder step) stick to it. Saving for retirement does take a lifetime, from your first day of work until your last. Therefore, persistence is the key to ensuring that all your efforts pay off at the end.
Own Up to Your CircumstancesYou always have to own up to your situation. It doesn’t matter if it’s good or bad. You should know where you stand with your finances. Shying away from your situation or being ignorant of the fact that your financials are suffering won’t help you in any way.
Start Early, Don’t DelayWhen it comes to pensions, it’s never too early to start planning for your later life. When you invest money, it compounds, thus significantly increasing the longer you invest it for.
Over-PlanNo one can predict their future. Retirement isn’t a fixed term, so you need to try to save more cash than your initial plan.
Worry LessIt’s always incredible to get the financial advice you need, especially when you’re dealing with something as vital as your retirement. Planning for retirement takes years of work and patience, but it shouldn’t be a scary process. Get yourself a financial adviser or seek advice from friends and relatives, and you’ll feel less anxious – you don’t have to go through it alone.
Frequently Asked Questions
Well, you need first to determine how you want to retire, how you want to get paid, and then research on the most ideal on buying an annuity7 to offer you a standard payment plan.
Various plan providers8 offer you different options for receiving your pension. They include taking your premiums in one lump sum, getting monthly payouts, and investing the cash into a fund you can withdraw from.
Pension lenders take many things into account when they’re calculating your pension. They include your age, gender, the size of your pot, the interest rates, and your medical condition. You can also use the pension calculator to figure out how much you’re eligible for.
It’s a tax-free benefit that’s aimed at retirees who are on a low income. It’s means-tested, but if you’re eligible, it can be worth €1000 every year.
The older you are when taking out a pension plan, the higher the payouts since your life expectancy is shorter.
You don’t have to stick with the same lender. You can transfer to another provider who can offer you better options.
You only pay tax on the income you get that’s above your tax-free personal allowance.