If you’re self-employed, you won’t have access to a company pension. For many people, there may be a corporate pension available which should usually be your first port of call. However, you might want to start saving for retirement outside of that program. There are many other reasons why you might consider a personal pension, for example, if you are unemployed, change jobs regularly, or have taken time off work to care for others.
Furthermore, there are many reasons why you should contribute to a personal pension even if you’re eligible for a state pension. Let’s learn why professionals should consider a personal pension.
The Financial Benefits
Most people would want to receive a higher income than what is provided by the State Pension. For 2020, it only pays out £168.60 a week or £8,767.20 a year. Fortunately, you can contribute to a personal pension that will pay out additional income upon your retirement.
Your employer may pay the premiums as an employee benefit. If you’re married, you could contribute to your spouse’s personal pension. This could increase the total income your household receives upon retirement.
The Tax Benefits
When you contribute money to a personal pension, you’ll get immediate tax relief. There are tax benefits when you retire, too. For example, you can withdraw up to 25% as a lump sum tax-free. The remaining funds will be paid to you as income, and the payments will be taxed accordingly.
Most people can put up to £40,000 a year into a pension provided that their contributions are not greater than their earned income. Money built up in pensions is also usually considered to not form part of your estate for the purposes of Inheritance Tax.
The Security It Provides
One of the benefits of a personal pension is that it can provide a flexible income for retirement. You can pay into one for yourself, your partner, and even your children. Most personal pensions are flexible and portable. You will be able to continue paying into the same plan whether you switch jobs, become self-employed, or take a few years off.
You can supplement your income upon retirement directly from your pension or you can use your pension funds to buy an annuity. On the other hand, you can gain access to a much winder ange of investment options by taking advantage of a Self-Invested Personal Pension, or SIPP.
On the Willis Owen website you can find some useful content which discusses if SIPPs are the right option for you, and they also explore the types of things you can invest the pension money in. When you use them as a Sipp Provider, you could reclaim the basic rate tax relief on your contribution. You’ll also get the benefit of expert support which can help you to ensure that you make the most out of your personal pension and make the best choice for your situation.