We all want a bright future when we retire. The best way to make sure you can enjoy your life after work is to save towards your pension. Each month you and your employer will be contributing to your fund based on a percentage of your salary. Although this will offer you a relatively comfortable life after retirement, it might not provide that additional comfort that will help you to holiday lots or enjoy an expensive hobby.
Adding to your pension
Some people purchase property and hope this will provide the breathing space to enjoy retirement. Others invest additional income, hoping for a significant return that will add to the fund. Another option available to teachers, as part of the Teachers’ Pension Scheme, is to pay more into your fund as you earn.
There are several opportunities available, including:
- Additional pension, which can be bought in multiples of £250 per annum
- Buy out, which means you can buy out the actuarial reduction if you choose to retire early.
- Faster accrual, which allows you to pay higher contributions each month
- Additional voluntary contributions (AVCs), which is a separate scheme that allows you to pay extra each month.
Why would you increase your pension?
You might worry that paying more now will leave you strapped each month. Therefore, you might rightly think additional contributions is not the right move for you at the moment. However, if you have some disposable income, paying into your pension does offer a more significant return than holding money in a bank account – for the most part. You will increase your benefits both in terms of the lump sum and the allowance you receive on retirement.
However, it is essential to speak to an independent financial advisor. There may be tax implications on your choices, and there might be more suitable ways for you to prepare for your future. An advisor will also talk you through each of the schemes, exploring the best options for you.
The content in this article was correct on 1st June 2020. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on the different types of retirement available with the Teachers’ Pension Scheme. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.