Pension schemes offer a tax efficient form of investment
Understanding the benefits of saving for a pension is important because your State Pension (whilst it will provide a regular steady income) it is unlikely to be sufficient for you to live on during retirement.
It is reported that more than half of the people in the UK are not saving enough to give them the standard of living they are hoping for when they retire. Consequently, individuals are often having to make a choice to either:
- Adjust their financial expectations for when they retire;
- Defer their retirement to a later date; or
- Simply save more whilst they are working.
Any contributions paid into a pension scheme will benefit from tax relief and are not subject to tax while they are invested. Consequently, for those who choose to save more whilst they are working, pensions are often seen as a tax-efficient form of investment.
Even when you retire there are further tax advantages of being invested in a pension scheme. Whether you are invested in a defined benefit or defined contribution scheme any Pension Commencement Lump Sum you elect to receive will generally be free of tax. Also, any pension or annuity income you receive (whilst it will be subject to tax at your marginal rate) it will not be subject to National Insurance contributions.
Could you therefore be saving more into your pension and take advantage of this tax efficient form of investment?
