Pension saving: Britons urged to take advantage of ‘most profitable form of saving’
Pensions: Money Box caller talks impact of age differences
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There are various tools available which could help people put money away for the future, and specifically for their retirement. Workplace pensions were introduced to help people get started in contributing to their pension pot, and tax relief could make private savings more attractive too.
Adrian Lowery, personal finance expert at investing platform Bestinvest urged Britons to take advantage of pension tax benefits and employer contributions as a means of boosting their retirement savings.
Mr Lowery explained the potential benefits that pension saving can bring, with tax relief on offer for people saving towards their retirement.
He said: “For many workers, saving into a company or personal pension is the most profitable form of saving.
“This is because most people receive tax relief on their contributions from the Government at their marginal income tax rate.
“Basic rate taxpayers get 20 percent added to their pot on each contribution.
“Higher rate taxpayers on the 40 percent tax rate and additional rate taxpayers on the 45 percent rate will also get 20 percent and 25 percent knocked off their tax bills, in addition to the 20 percent top-up.
“However, there is a limit to what you can pay into a private pension each year and still receive the tax benefits, and if you are near this it might be wise to take financial advice.”
Indeed, the Annual Allowance caps the amount people can save towards their private pensions in any given year and still receive tax relief.
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There is no limit on the amount people can save in general, but anything over £40,000 will not be tax-free.
Workplace pensions are another potential way Britons could increase their pension savings, as employers match the contributions of employees.
Mr Lowery explained: “In the case of company schemes, the employer pays a minimum of three percent stipulated under auto-enrolment rules, but many companies will match employee contributions to a higher amount – another source of ‘free cash’.”
He also issued a reminder that the earliest age at which people can draw from their private pensions is changing.
Funds can currently not be accessed until age 55, but this will increase to age 57 in 2028.
This age is known as the normal minimum pension age (NMPA), which sets the earliest point at which Britons can draw their private pensions.
Anyone who accessed their pension pot before this may be subject to unauthorised payment charges, so it is worth remembering that the restrictions are in place.
Awareness surrounding the NMPA is low, with research from the Pension Management Institute showing that 82 percent of working people in their 40s were not fully aware the threshold will increase from age 55 to 57.
They also discovered that just four percent of people knew at what age they are allowed to draw their pensions.
A lack of understanding of the NMPA could lead to people being caught out and paying the price as a result.
The NMPA is being increased in line with the state pension age, which is currently set to go from age 66 up to 68 by 2046.
This is different from the NMPA, and dictates when people become eligible to receive the state pension. It is not possible to receive any state pension before the state pension age.
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