Britain’s population is ageing. More and more pensioners are relying on a smaller workforce to fund State pensions. It is therefore vital to make extra provisions for retirement.
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Pensions are tax efficient with the Government providing tax breaks at 22% for basic tax rate payers and 40% for those paying higher rate tax. It is not often that the Inland Revenue actually gives us money, so it makes sense to take advantage of a pension.

What type of pension should I choose?

Many employers are obliged by law to offer a pension scheme to employees. If your company is to contribute, it is usually sensible to take advantage of such a scheme. If you are self-employed, a stakeholder pension could be the way forward. Stakeholder pensions were introduced in April 2001 with the intention of encouraging those with lower incomes to plan for retirement. These pensions aim to be straightforward, low cost and flexible.

For the more adventurous, a Self Invested Personal Pension (SIPP) allows you to manage your own investments.

You can contribute to as many pensions as you like as long as you don’t exceed the maximum levels for contributions set by the Inland Revenue.

How much should I contribute?

In theory, the more you contribute, the greater your retirement income. It is therefore advisable to invest as much as you can afford. The recommended amount is at least 10% of income, and it is important to ensure that your contributions increase in line with your salary.

The rules introduced in April 2006 permit UK residents to contribute up to 100% of their pensionable income into pension contracts.

The pensions market is vast and there are numerous products to choose from, each with different charges, fund performance and legislation. It is important to ensure that your contributions are adequate to provide you with the income that you would like to receive in retirement. A discussion with your IFA can help you to reach a decision about the policy that would be best for you.