Basically, pension is a long-term saving plan with the advantage of tax relief. The idea is to invest in the plan throughout your career which will serve as an amount for your later life. The amount which you grow during your career can be accessed 55 years of age onwards.
So, a pension is basically a long-term savings plan with tax relief – your regular contributions are invested so that they grow throughout your career and then provide you with an income after retirement.
Pension may not be enough for a living but they are important because they provide you a foundation. You need to save more to live a life you want. Initially, pension may seem to be a complicated concept, but at the end the purpose of State Pension is simple – to benefit you monetarily.
It has been found that more than half of UK’s population does not save for their retirement. If they are saving at all, then it is not the sum they are looking at after retirement. The amount they will get after retirement is not what most people want for the standard of living they desire. Therefore, you have a few choices – adjust your requirements and expectations according to the amount you will get, increase your contribution into the saving pot, opt for later retirement. It is not advisable to rely solely on State Pension to serve you after your job is over. The maximum basic pension amount (effective – 6 April 2016) is £155.65 a week which falls much below people’s expectations.
You pay a fixed amount as tax to government when your income exceeds a certain level which can be seen on your payslip. But if you invest in a personal pension plan, you qualify for tax relief. It means that the money goes into your pension fund instead of going to government. Even if your income is below the tax-paying level, the government still puts tax relief into your pension pot.
There is a plan being implemented which makes compulsory for employers to enrol workers into a workplace pension scheme. No enrolment is required if you are already enrolled in a scheme. The purpose of this scheme is to help people save more for their retirement. It is like a pay hike and it is strongly recommended to join the scheme under any financial circumstances that you may be in.