Pensions Northern Ireland

Why have a pension?

A question to ask yourself is: when I stop working, how can I continue to support myself in retirement?

You’ll need to think about how much money you would like to live on and how long it needs to last, especially as the age that you start getting the State Pension is increasing.

There are many ways to save for your retirement such as ISAs which provide tax free retirement income and a pension is another one of them. Saving into a pension is a tax-efficient means of putting money aside for retirement.

How does a pension work?

A pension is simply a way of putting money aside for when you retire. Money contributed to a pension will receive the benefit of tax relief.

That  is if you’re looking to contribute to a personal pension and want to pay £100 into this – you pay £80 and HMRC then tops this by the equivalent to the basic rate of tax, so by another £20. If you’re a higher or additional rate taxpayer, you can also claim additional tax relief through your tax self-assessment form at the end of the tax year.

The money you put in is invested and builds up in a pot, so later in life you can then access this. At the time you’re able to take money from your pension pot, the first 25% will usually be tax-free with the remainder being taxed as income.

You already have several existing pensions and want to combine them?

If you have multiple pensions, perhaps from previous jobs, combining them into one pension can make it much easier to keep track, could save you money and potentially achieve better growth providing you with a larger pension pot to retire with.

For example, if a 35-year-old with a £10,000 pension pot invests until 65 in a fund that achieves 5% annual investment growth, but charges 2% a year, the pot will be worth £23,720. The same £10,000 invested in a fund that achieves 7% annual investment growth, with a 1.5% annual charge, will be worth £48,541 – more than double. Please note that inflation will affect the value of your savings and purchasing power in the future

How to access money from your pension?

From age 55, there are three main ways you can take your money: Take your tax-free money first, take a combination of tax-free and taxable money or take a guaranteed income for life. You could also take a combination of these three, or simply do nothing at all.Each of the main options usually allow you to take up to 25% of your pot tax-free. You might also need to pay tax on the remaining 75% of your pension pot, depending on your circumstances and the options you choose.  Rules governing income withdrawals and taxation can change in the future

Although the overall principles of how a pension works can be simple, in practice it can be a very complex area requiring considerable thought and making key decisions.

Our team of pension specialists can help you navigate your journey through the pension maze to a comfortable retirement. Contact us today.