{"id":25167,"date":"2019-05-31T12:16:03","date_gmt":"2019-05-31T12:16:03","guid":{"rendered":"https:\/\/www.outsourcedacc.co.uk\/?p=25167"},"modified":"2020-01-06T13:24:17","modified_gmt":"2020-01-06T13:24:17","slug":"all-you-need-to-know-about-pension","status":"publish","type":"post","link":"https:\/\/www.outsourcedacc.co.uk\/blog\/all-you-need-to-know-about-pension\/","title":{"rendered":"All you need to know about Pension"},"content":{"rendered":"

All you need to know about pension<\/strong><\/p>\n

A pension is a good way to save for your future and ensure you\u2019re set up to have money in retirement \u2013 and most people know that. So why are pensions a big switch off for many?<\/p>\n

One reason could be that they might not seem a priority. The future can seem a long way away when you\u2019re struggling to make ends meet in the here and now.<\/p>\n

They can also be difficult to understand. There are so many different pension options and jargon to get your head around, it can sometimes feel overwhelming and complicated.<\/p>\n

If these seem like reasons you\u2019ve been neglecting your pension, a little guidance could be just what you need.<\/p>\n

Is a pension really worth it?<\/u><\/p>\n

A key plus of a pension plan is the tax relief, which comes in two forms depending on whether you’re a basic-rate or higher-rate taxpayer.<\/p>\n

You get some tax back on the money you put into a pension, while gains from the investments you make with that cash are largely tax-free.<\/p>\n

What tax relief do I get?<\/u>\u00a0<\/u><\/strong><\/p>\n

If you pay the money into your pension yourself, or if it is taken by your employer from your pay packet, you automatically get 20% tax back from the Government as an additional deposit into your pension pot.<\/p>\n

If you are a higher-rate taxpayer you can claim an additional 20%, while top-rate taxpayers can claim an additional 25%. If you are part of a workplace pension, you may not need to reclaim any tax if your employer simply deducts less tax from your pay packet.<\/p>\n

However, if you don’t reclaim, it won’t be paid. Therefore, it is important to check if you are in a higher tax bracket.<\/p>\n

If your employer puts the money straight in from your pre-tax pay then it’s never taxed in the first place, so you still win.<\/p>\n

How does the tax relief work?<\/u><\/p>\n

If you get 20% tax relief, it doesn’t mean you get 20% back of what you contribute.<\/p>\n

Instead, the taxman works out your earnings on your contribution amount before tax was deducted. You then get back the difference between your contribution and your pre-tax earnings.<\/p>\n

So, when a basic 20% rate taxpayer invests \u00a380 of their take-home pay in a pension, they’d have earned \u00a3100 before tax to come out with \u00a380 (20% of \u00a3100 is \u00a320, leaving \u00a380). In that example, the tax relief is \u00a320.<\/p>\n

The graph below illustrates the tax boost.<\/p>\n

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How much should I put in a pension?<\/u><\/h3>\n

With\u00a0auto-enrolment\u00a0pensions, there are minimum contribution levels. But if you can you afford it; you really should be contributing more.<\/p>\n

Before starting, it’s worth noting those in debt, especially at high rates of interest, should consider whether it’d be better to get rid of that before starting a pension. Plus, a pension’s only one form of retirement planning. Combining it with other methods is often a good plan.<\/p>\n

If you opt for a pension, the simple answer of how much to put in is as much as possible, as early as possible. There are some rules for comfortable retirement:<\/p>\n