Forex

Everyone needs to plan for their retirement, so start thinking about pensions and savings as soon as you can. Whether you are settled in a career with a long-term employer or are just about to move jobs, make sure you have well thought-out pension plans.

Pension schemes are one of the most effective ways to save money because you can receive tax relief on the money you invest. Make sure you understand how it all works and ensure that you are saving in the best way for your personal circumstances.

Here are some of the common queries about pensions:

How does a pension work?
A pension is simply a tax-free method of saving for retirement. Money is paid in free of tax, so every £78 a basic rate taxpayer contributes is topped up to £100 by tax relief. For every £60 that higher rate taxpayers contribute to a pension, an extra £40 is added by tax relief. The money grows free of tax. At retirement, most of the money built up is used to buy an income.

If I take a job, should I join the pension scheme?
If you work for an organisation that offers a pension scheme, you are almost certainly better off joining than going it alone. In addition to the money you pay in, your employer will usually pay money in on top and there will probably be extra benefits such as free life insurance.

New tax rules have made it easier to save in more than one occupational or personal pension; and to save in both an occupational and personal pension scheme at the same time. Saving in more than one scheme can give flexibility and choice, but it can also involve more administration costs.

What type of scheme will I be offered?
More and more employers have stopped offering employees final salary schemes as they are expensive to run. These give a guaranteed pension level based on a percentage of your final salary. You’re more likely to be offered a money purchase scheme, in which an individual fund grows within the company’s overall scheme. When you retire, your pension will be based on the value of that fund.

What if my potential employer doesn’t offer a scheme?
If a company has five or more employees, it must provide access to a pension scheme. At the very least, it will have to act as a gatekeeper to one of the new low-cost and flexible stakeholder pension options. If you decide to join, your employer will arrange for money to be transferred from your pay automatically. More details are available from The Pensions Service.

What does the State Pension offer?
The Government plans to change the State Pension system for people who reach State Pension age on or after 6th April 2010. These proposals include:

* Introducing personal accounts – a new low-cost saving scheme.
* Introducing a new system of credits that will increase the number of people entitled to a State Pension.
* Increasing the State Pension age from 65 to 68 between 2024 and 2046.
* Abolishing contracting out for defined contribution occupational pension schemes and personal pension schemes.
How much can I invest in a pension scheme?
There is no limit on the amount of money you can save in a pension scheme or the number of schemes you can save in – although there are some limits on the amount of tax relief you can receive. You will get tax relief on contributions up to 100 per cent of your annual earnings (up to an annual allowance of £215,000).

What happens to my pension if I keep moving jobs?
It depends on the sort of pension you have and how long you’ve held it. In general, if you have had an occupational pension for less than two years, your contributions will be refunded.
When can I get at my money?
The earliest age you can receive your pension is 50, although individual schemes may have a higher limit. The rules governing when you can take your pension will change. From 6th April 2010 you will not be able to take a pension before you are 55. There are a few exceptions and you will still be able to retire early due to poor health.

What are the alternatives to a pension?
There are plenty of options for investments and tax-free saving that you can use towards your retirement, so consider all the options.

Alternatives include Individual Savings Accounts (ISAs). Each year you can pay cash and shares into an ISA, and the money will earn tax-free interest. The Government has said the limit for investment will stay at £7,000 a year until April 2010. The money will be accessible, but if you take an ISA instead of a pension you will have to be disciplined and ensure that you don’t touch the money until you retire.

Property may also be a good investment, as long as the housing market remains buoyant.