Pensions & Retirement Savings
A Personal Pension Plan (Scheme) is an investment policy that provides an income in retirement. It is available to any UK resident who is under 75 years of age. It can also be referred to as a defined contribution or a money purchase scheme.
You contribute to the savings plan, the money is invested and a fund is built up. The amount of pension payable when the policyholder retires is dependent upon:
You contribute to the savings plan, the money is invested and a fund is built up. The amount of pension payable when the policyholder retires is dependent upon:
- the amount of money paid into the scheme;
- how well the investment funds perform; and
- the 'annuity rate' at the date of retirement. An annuity rate is the factor used to convert the 'pot of money' into a pension.
How much to save?
Think of what you want to do in retirement. Think of what age you would like to stop working. Hopefully you will have cleared major debts like your mortgage. However, pursuing hobbies, belonging to sports clubs, travelling and dining out, costs a lot of money. It's generally accepted we want to spend more on leisure activities when we are not at work. And at just 2% inflation your current salary requirement would be more than double in 40 years time.
Now think where you could invest £100,000 to be absolutely safe and what interest you would enjoy. If you had a net 5% return on £100,000 this would only generate £5,000 per annum and so you need to save a lot to provide for a meaningful income in retirement.
As a general rule of thumb, you should aim to save a total of 12.5% of your gross salary into a retirement scheme, according to one of our providers Aviva. This will include any contribution made by your employer if applicable.
You would need to save this consistently without break for at least 40 years. So starting saving early is so important. Young people think pensions are for old people, but weirdly they dream of retiring early. Our advice is to build a pension cost into your budget as soon as you start work.
Don't rely on work pensions. It may feel good if your employer is paying in say 3% and you are matching this, but as above, it may well not be enough.
Now think where you could invest £100,000 to be absolutely safe and what interest you would enjoy. If you had a net 5% return on £100,000 this would only generate £5,000 per annum and so you need to save a lot to provide for a meaningful income in retirement.
As a general rule of thumb, you should aim to save a total of 12.5% of your gross salary into a retirement scheme, according to one of our providers Aviva. This will include any contribution made by your employer if applicable.
You would need to save this consistently without break for at least 40 years. So starting saving early is so important. Young people think pensions are for old people, but weirdly they dream of retiring early. Our advice is to build a pension cost into your budget as soon as you start work.
Don't rely on work pensions. It may feel good if your employer is paying in say 3% and you are matching this, but as above, it may well not be enough.