Should I start a personal pension fund?
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Douglas Bridges, an Independent Financial Adviser with Smith & Pinching, advises on pension funds.
I’m in my mid fifties and have begun to think seriously about my retirement. I’ve been a part of my employer’s pension scheme for a long time – probably about 20 years now – but haven’t done anything with it other than what was needed as a minimum to get the company’s contribution. I’d like to start increasing what I put into a pension now but wonder if I should contribute to my employer’s scheme or start a personal pension.
Douglas Bridges of Smith & Pinching responds:
Topping up your pension savings is generally a good idea if you can afford to do so, as you will receive tax relief for your contributions – which means that for every £8 you put into a scheme, the government will add a further £2 if you are a basic rate taxpayer, and more if you are a higher or additional rate taxpayer.
However, I can’t tell you whether to use your workplace scheme without finding out more about it. We’d need to look at the scheme’s suitability for you in terms of its performance, investment strategy and if it’s aligned to your risk profile, as well as evaluating your circumstances and future needs. In addition, not every workplace scheme will accept additional contributions. It is nevertheless important to explore the options available through your workplace scheme as your employer may perhaps increase their contribution if you increase yours.
It may well be that a new Personal Pension scheme can be better tailored to your needs. Again, this will depend on you and what you want to achieve.
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You can choose to make additional contributions on either a one-off or a regular basis. Within any given tax year you can contribute up to 100pc of your salary – or up to £3,600 if you earn less than that – up to the annual allowance for pensions. Currently the annual allowance stands at £40,000 provided you haven’t already started taking flexible benefits from your fund in which case it drops to just £4,000 per year. There’s another scenario where your annual allowance might be less than the standard amount: if you are a particularly high earner you may be subject to a tapered reduction in your annual allowance.
Getting independent advice at this point is a good idea, as you begin to plan for the reality of retirement. You have a number of working years ahead of you in which you could potentially add a significant amount to your pension savings: knowing what you need to put aside to achieve your desired lifestyle in retirement will be critical to your planning.
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Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information visit smith-pinching.co.uk