Understanding Retirement Planning
The importance of making a retirement plan cannot be overstated. It’s a means of taking advantage of a savings plan that will grow into a fund that will see you through retirement. One of the most crucial aspects is that it’s a tax-efficient way of saving, as you receive tax relief on your pension contributions.
Contributions are held in a pension fund, but there is a range of types from which to choose, with varying degrees of risk. Therefore it’s important to seek advice to ensure you’re investing in a way that suits your age and attitude to risk.
There will be charges to consider, which may be in the form of a percentage of the contribution as an initial fee or a percentage of the fund value every year, to cover administration and fund management. You may wish to opt to top up your pension by making additional contributions, particularly as your income grows, so that your pension doesn’t lag behind your earnings.
Your pension fund should now provide an income for your retirement years. This may be in the form of an annuity or by drawing down an income from the fund. You will be taxed on your pension income, although you may take the first 25% as a tax-free lump sum.
The retirement landscape is constantly shifting. People are now living longer and it has become increasingly important for individuals and businesses to plan for access to tax-free lump sums and sustained income in later life.
The furthest-reaching reforms to pension legislation occurred in April 2015. ‘Pension freedoms’ were introduced, giving us the potential of earlier access to our pension pot, and improved ability to pass on tax-free assets from pension schemes. But it is far from straightforward and there are risks.