It might seem a long way off now, but one day you’ll retire. And if you want to carry on enjoying the lifestyle you’re accustomed to, you’ll need a reasonable amount of money to live off.
Paying into a pension plan should help you build up such a sum of money. Pension plans are designed to help you build up a pension pot over time, which you can then use to provide for yourself in retirement.
One of the best things about having a pension plan is that the government tops up any money you pay into it.
For every 80p you pay into your pension pot, the government adds 20p in tax relief, boosting it to a total contribution of £1. So if you paid £100 into your pension pot each month, the government would boost it to £125.
What’s more, if you pay tax at more than the basic rate, you can claim even more tax relief when you complete your annual self-assessment tax return.
If you’re a UK taxpayer, you’ll get tax relief on pension contributions of up to 100% of your earnings or a £40,000 annual allowance, whichever is lower. Any contributions you make over this limit will be subject to income tax at the highest rate you pay.
If you are not earning enough to pay income tax, you can still receive tax relief on pension contributions up to a maximum of £3,600 a year or 100% of earnings, whichever is greater, subject to your annual allowance. For example if you have relevant income below £3,600, the maximum you can pay in is £2,880 and the government will top up your contribution to make it £3,600.
This information is based on our current understanding of tax rules, which can change. Visit gov.uk for more details.
On top of this support from the government, your employer may pay into your pension plan, too.
If you’re automatically enrolled into a pension plan, your employer will pay in contributions on top of yours. So with your employer and the taxman contributing every time you pay in, you'll be getting plenty of extra help to prepare for your life after work.
Even if you’re not automatically enrolled, your employer may still contribute towards your pension. Ask them for more details.
The money that goes into your pension pot is invested, giving it the potential to grow over time. Just remember that, as with any investment, the value of your pension plan can go down as well as up, so it may be worth less than the amount paid in.
Your pension plan belongs to you. And it stays yours, even if you move to a new employer or the company you work for goes out of business or changes hands.
What’s more, once money is in your pension plan, it normally stays locked away until you reach age 55. So even if you're tempted, there's no way you can spend it. When you are ready to take your retirement benefits you will have a number of different options about how you can use your pension pot including taking an income, lump sum or a combination of both of these.
The earlier you start paying into a pension plan, the greater your chances of getting the retirement you want. So it pays to start as soon as you can.
Please take the time to read the essential guide to your scheme, which includes the key features and terms and conditions.
Your company pension scheme
Your company stakeholder pension scheme
Millions of us are being automatically enrolled into pension plans. Are you?
Use our calculator to see how much you might get when you retire.