The why and what of personal pensions


The Personal Investing Team

12 May 2019

Saving for retirement isn’t a nice to have. It’s a need to have. Paying into a pension should be a vital part of our day-to-day working lives.

 We’re living longer, which means our money needs to last longer, and saving in the here and now is vital for a financial provision that lasts well into later life.

Contributing to a pension is a tax efficient way of ensuring we have money to live on when we stop working and no longer have access to a salary or other-work related income. If we don’t want to or can’t work in retirement but we haven’t saved enough, we may not be able to enjoy the retirement we’d set our hopes on or may struggle to make ends meet. So pensions, especially personal pensions if you don’t have a workplace pension, can be a valuable tool for life-long financial security.

Personal pensions help you commit to saving over the long-term

Imagining what we will need in terms of savings in 10, 15, 20 or 30 years’ time can be difficult. Personal pensions, however, provide a structured way of saving over the long-term that can help take the worry away and invest your money with the aim of making your contributions grow into a sizeable pot.

With a Legal & General Personal Pension all you need to do is choose how much you want to save, what you want to save (invest your money) into and then we do the rest, including claiming basic rate tax relief from the government on your behalf, and adding it to your pension savings.

127-1400-article.jpgUsing investing to make a difference to your financial future

Pensions are invested with the aim of generating returns on your cash. All you need to do is decide what to invest in. We know this can be a difficult, so we’ve created a list of funds for you to choose from for your Legal & General Personal Pension.

The funds available through the Legal & General Personal Pension are straightforward and accessible. They are designed to take a lot of the burden of investing away by offering funds that spread your money across different types of investments (known as asset classes) for you.

However, you should bear in mind how long you’re investing for when deciding which fund is right for you, so you can determine the level of risk you’re happy to take (i.e. it might not be wise to invest in high-risk funds if you’re not far off retirement as you won’t have the time to ride out any short-term volatility). Furthermore, it’s important to check what the funds are invested in to make sure you’re happy with the assets that they hold.

Rewards for saving

The Government encourages us to save, so much so that they offer tax-incentives for pension contributions. These incentives include tax relief on your personal pension contributions (up to 25%, paid as a top-up, equivalent to basic rate tax relief), freedom from Income Tax and Capital Gains Tax on any returns made by the fund, and the possibility of taking a lump sum tax-free when you reach retirement (normally you can take 25% of your pension pot as tax-free cash, the rest is subject to Income Tax).

There are a number of ways of accessing your pot after you reach state pension age or retire, including buying an annuity or taking a flexible income. You can also leave your pension pot invested if you have other savings, such as stocks and shares ISA investments, which can also provide an income. Please remember that it’s worth regularly reviewing your funds in case your level of risk has changed and the funds you’re invested in no longer suit your saving aspirations. Please remember that the law and tax rates may change in the future and the value of tax relief depends on your individual circumstances.

Pension saving nearer to retirement

While it’s always a good time to save, when you’re nearing retirement it’s important to think about your risk and your tax situation. Saving into a pension plan is not for everyone, and may not be suitable for you, particularly if these savings could affect your entitlement to any means-tested state benefits. Given that we’re also living longer, selling down our exposure to things like company shares may not see your pot last as long as you’d like. If you’re not far from retirement but you’re keen or concerned that you need to keep on saving and investing, you could also think about a stocks and shares ISA and using income funds or owning investments that pay an income.

When it comes to retirement, speaking to a regulated financial adviser might help you find the reassurance and specialist insight that you need to make the right decision about your savings, help you manage investments after you have stopped working or help you make your savings go further.

If you’d like to seek advice regarding your retirement savings, Unbiased can help you find a suitable adviser. If you are over 50 and want to understand how to access your pension pot, you can use the free and impartial guidance service provided by Money and Pensions Service (MAPS).

Risk warning

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest . Tax rules for ISAs may change in the future and their tax advantages depend on your individual circumstances.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.