Knowing exactly what’s going on with your money and understanding how pensions work can seem baffling but it is vital to get a handle on your finances.
Everyone is affected by the current cost of living crisis at the moment but ignoring your pension now is storing up problems for the future.
This week is Pension Awareness Week which highlights the growing problem that many people are not saving enough for their retirement.
To help, Pension Awareness is breaking down traditional pension and money topics in digestible ways.
Book any of the free live TV shows running online this week – such as Pension 101 or combining pots and the State Pension – to help you secure your future.
The expert team will host Q&As and there budgeting hacks to improve your overall financial wellbeing.
And to help Warrington residents understand their rights and the advantages of saving for retirement, here is our Money Advice Officer – Steven Higham’s easy-to-understand guide to pensions.
What is a pension?
A pension is a long-term investment that provides an income after your retirement so you can enjoy a comfortable lifestyle and pay your bills when you are no longer working.
There are three main types of pension:
State Pension: paid by the Government based on the National Insurance Contributions or Credits accumulated during your working life.
Company/Workplace Pension: employers pay a percentage of your wages and a contribution themselves into a scheme. It also reduces the amount of income tax you pay.
Personal/Private Pension: an extra pension arranged yourself with a company which invests your money and then pays it as an income when you retire.
What happens to my money?
The payments you make to your pension provider are usually invested, for example in stocks and shares, so the money can grow over time. There is also a lot of tax relief which helps your pension pot get bigger faster, so you have a better income in retirement.
Why should I save into a pension?
- pay less tax so there is more money when you retire
- your employer will pay towards your workplace pension which will mean the value will go up much more quickly than if you saved the money elsewhere
- ability to maintain a good standard of living when you retire
- ability to take a cash lump sum when you reach 55 years old
What happens if I don’t save enough?
The Government has set a minimum limit on the amount of income you can have when you reach retirement age, and if you fall below this limit you can apply for a means-tested benefit called Pension Credit to top-up to this amount. However, the rates are quite low, and it would be much better to save for retirement so you can have a better standard of living.
Pension Scams
With a workplace or private pension, be wary of scammers. Cold-caller or adverts often offer pension reviews to try to persuade you to transfer your pension into their schemes. If you are considering moving your pension, research the company thoroughly, check they are registered with the Financial Conduct Authority and remember: if it looks too good the be true, it probably is.
Where to get help
Our Money Advice Officer can offer general help and information but cannot give financial advice about specific pension products. For more specialist advice if you are 50 or over, contact Pension Wise. The Pensions Advisory Service can also help with any queries about workplace or personal pensions.
Pension Awareness Week is about so much more than pensions. It’s about mindful money, budgeting hacks and your overall financial wellbeing. Get involved!
