Martin-Redman Partners writes:
What are the benefits of a workplace pension?
One of the main benefits of a workplace pension is the ability to build up a retirement pot that you do not have to contribute alone. Your employer is required to contribute too through automatic enrolment, helping you build your retirement fund faster.
Why have a workplace pension?
- To have money, over and above, the State Pension
- To allow you to retire early, before State Pension, if affordable
- To save money, in a tax efficient environment, for the long term
- To benefit from your employer’s contribution, which is at least 3% from April 2019 (as near as you will get to free money!)
- To take advantage of compound interest over the long term
- To minimise the cost of the pension scheme, compared to market alternatives.
The benefits of Pensions
Any money you hold in a pension scheme is exempt of income tax and capital gains tax, so investment increases are maximised. For most people, who pay into their workplace pension scheme using payroll deduction, no tax is taken from pension premiums, so a £100 contribution costs the equivalent of £80 net pay. (For people paying 40% tax, a further 20% can be recovered from HMRC, up to the annual limits).
In general, workplace pensions are cheaper to operate than other alternative pension schemes . Stakeholder pensions, (the most basic Personal Pension Plans), have a maximum annual cost of 1.5% of funds invested. Workplace pensions has a fund charge cap of 0.75% for some funds, although some optional funds may cost more.
For members older than age 55, workplace pensions offer the ability to save in a greatly tax advantaged manner, compared to ISAs. Money paid into an ISA will be paid from your already taxed income, so start at a minimum 20% disadvantage compared to a pension contribution. Pension rules will allow you to access funds with 25% tax free and the balance taxed at your usual tax rate. These days, stocks and share ISAs and pension funds can contain the same investments at similar terms, so tax considerations become more important.
If you would like to read more on this topic, the Government body, the Money Advice Service, gives some useful detail on the benefits of automatic enrolment here.
How do I get professional advice on my Pension arrangements?
If you would like to discuss automatic enrolment or your wider retirement planning please contact Sarah Austin at sja@martin-redmanpartners.co.uk or call 01223 792 196. I’d be delighted to help.
About Martin-Redman Partners
We are a team of experienced Financial Advisers who can advise on your personal or business financial arrangements. We have been building trusted relationships with clients for many years by articulating clear and tailored recommendations in areas ranging from investments to retirement planning, to complex estate planning advice.
The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.