In the UK there are many places you can save money for your future. From ISAs, regular savings accounts, to shares and bonds. However, when it comes to saving for retirement there is one place that has some pretty great benefits. This is your pension fund. A pension fund is simply a pot of money both you and your employer can put money into, which you can receive tax relief on. Here are the four key benefits of saving into a pension fund.
1. Tax relief
One of the great benefits of pension savings is the tax relief you get.
If you have an Occupational Pension, your contribution is deducted from your pay before income tax is calculated.
So, you only pay income tax and national insurance on the remainder. Whatever your personal tax rate.
For personal pensions, you get immediate 20% tax relief. If you want to save £100 a month, it only costs you £80. Higher and Additional Rate taxpayers can claim their extra 20% and 25% through their self-assessment.
2. Compound interest
Over long periods of time, investment funds tend to increase in value. If you saved £100 a month for 30 years, and your funds grew by 5% each year, your pot would be worth £83,572 (+232%). And yet you only contributed £36,000.
The positive effect of growth on growth. And the sooner you begin saving, the more benefits you should get.
3. Employer contributions
Many workplaces will match your pension contributions up to a certain amount.
So, this means you may be able to double the amount of money going into your pension each month. Therefore, you will have an even bigger pension pot to enjoy at the end of it.
4. Flexible access
Your pension pot is highly flexible from age 55. Almost all pensions allow you to take some of your money as tax-free cash. In many instances, you can vary your income year by year (personal pensions). The remaining money remains invested with the opportunity to grow. If you prefer a fixed guaranteed income, an annuity may be suitable.
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