Where to Start with Your Pension

Pensions can seem like a daunting, almost abstract concept when you’re just starting out. However, it’s important to get your head around how pensions work and the tangible steps to get your pension contributions in order.  

Whether you’re just beginning to think about your future or looking to improve your existing plans, this guide should help you feel a bit more confident. 

1. Understand the Basics

Before diving into pension planning, it’s crucial to understand the different types of pensions available in the UK:

• State Pension: This is a regular payment from the government that you can receive once you reach State Pension age, based on your National Insurance contributions.

• Workplace Pension: This is set up by your employer, and both you and your employer contribute to it. Under auto-enrolment, most employees are automatically enrolled in a workplace pension.

• Personal Pension: This is a private pension that you can set up yourself. It’s particularly useful if you’re self-employed or want to supplement your workplace pension.

2. Check Your State Pension

Your State Pension forms the foundation of your retirement income. The amount you’ll receive depends on your National Insurance record, so it’s a good idea to check how much you’re on track to get. You can do this by visiting the UK government’s State Pension forecast tool.

If there are gaps in your National Insurance record, you might consider making voluntary contributions to increase your State Pension amount.

3. Enrol in a Workplace Pension

If you’re employed, your workplace pension is likely to be the main source of your retirement income. Thanks to auto-enrolment, most workers in the UK are automatically enrolled in a workplace pension scheme. If you’re not already enrolled, speak to your HR department to get started.

You can usually contribute a percentage of your salary, and your employer will also contribute. It’s worth finding out how much your employer is contributing and whether they’ll match additional contributions if you decide to increase your own.

4. Consider a Personal Pension

If you’re self-employed, don’t have access to a workplace pension, or want to save extra for retirement, a personal pension can be a good option. There are several types to choose from:

• Self-Invested Personal Pension (SIPP): Offers more control over how your money is invested but requires more involvement.

• Stakeholder Pension: Typically has lower charges and more flexibility, making it a good option for those who want a simpler solution.

When choosing a personal pension, compare different providers to find one with low fees and a good range of investment options.

5. Review and Increase Your Contributions

The earlier you start saving, the more time your money has to grow. However, it’s never too late to boost your pension pot. Review how much you’re contributing and consider increasing your contributions if you can afford to. Even small increases can make a big difference over time due to compound interest.

A good rule of thumb is to aim to contribute at least 12-15% of your income towards your pension, including your employer’s contributions.

6. Understand Pension Tax Relief

One of the major benefits of pensions in the UK is tax relief. The government boosts your pension contributions by giving back the tax you’ve paid on them. For basic-rate taxpayers, this means every £80 you contribute turns into £100 in your pension pot. Higher-rate taxpayers can claim even more through their tax return.

7. Plan for Your Retirement Goals

Think about what kind of lifestyle you want in retirement and how much income you’ll need to support it. Use pension calculators to estimate how much you should be saving to reach your goals. Be realistic about your needs and consider the impact of inflation and life expectancy.

8. Keep Track of Your Pension

If you’ve changed jobs several times, you may have multiple pension pots. It’s essential to keep track of them, as you could miss out on significant amounts of money. Consider consolidating your pensions into one pot to make it easier to manage, but be aware of any fees or benefits you might lose by doing so.

9. Seek Professional Advice

If you’re unsure about any aspect of pension planning, it’s a good idea to seek professional financial advice. A financial adviser can help you understand your options, choose the right pension plan, and make informed decisions about your future.

10. Regularly Review Your Pension Plan

Your circumstances and financial goals may change over time, so it’s important to review your pension plan regularly. Make sure your contributions, investment choices, and retirement plans are still on track to meet your needs.

Final thoughts

Starting your pension journey might seem overwhelming, but by taking these steps, you can ensure that you’re on the right path to a comfortable retirement. The key is to start early, stay informed, and make the most of the options available to you.

Feeling stressed about your finances? Check out our blog on dealing with financial stress, or get in touch with us to speak to one of our advisers.