Consider your pension options before it is too late

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British consumers are spending too much and saving too little. If you have not already started preparing for your retirement, now is the time to start. We look at the pension options available to you.

In last week's feature on pensions we showed that a significant proportion of people are not saving enough to maintain their current standard of living after retirement.

So if you have not started planning for your golden years, you should start doing so immediately. First, you should figure out how much you will require to live comfortably after you retire and look at how much you need to save to achieve this.

At present, the weekly state pension rate for a single person is £87.30. However, if you have no other savings you are more likely to get in the region of £500 per month. While this is enough to survive, it does not make for a comfortable standard of living so you need to look at ways of supplementing this.

To put extra money aside for your retirement you have three options – occupational pensions, private pensions and stakeholder pensions.

Occupational pensions

If you are lucky, you may be offered an occupational pension by your employer. Also known as company pensions or work pensions, these allow you to make a contribution towards your pension from your salary each month. Usually, your employer will also make a monthly contribution.

Another benefit of an occupational pension is that you will get tax relief on whatever you pay into your pension scheme. This could be as high as 40%, depending on your salary. Unfortunately, fewer and fewer companies are offering pension schemes to employees. But if you are offered one, it is a great way to save money for your retirement.

Personal pensions

Today, personal pensions are the best option for most people preparing for retirement. If you cannot avail of an occupational pension or are self-employed this is probably the best option for you.

With most products you pay a certain amount each month. Your money is invested for you in a bid to get the highest return, often in stocks and shares. When you retire the money is used to buy an annuity from an insurance company that provides you with a regular income.

Again, you can benefit from tax relief with a personal pension and may have the option of taking a 25% lump sum when you retire.

Stakeholder pensions

A stakeholder pension is very much like a standard personal pension except that allows far more flexibility. It is an ideal choice if you are self-employed or do not have a regular income as you choose when and how often you pay, and there are no missed payment penalties.

Minimum payments tend to be low with stakeholder pensions and anyone, including your employer or family members, can make contributions on your behalf. As with other types of pensions, you will receive tax relief on your payments.

The pension products available on the UK market today are many and varied. Personal pensions can offer a lot of flexibility, allowing you to decide how you want your money invested and the amount of risk you want to take. It is, however, a very complex area so we advise you to seek the advice of a good, independent financial adviser.

The bottom line is if you are working, you should be paying into a pension scheme. And the earlier you start the better.

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