You have decided you need to start saving for your retirement. The fact you could be living on much less than £200 a week on a state pension has sunk in. You need to decide how you are going to do this.
While you could choose to use your savings account, there are significant advantages for using your pension. It is best if you start to view your pension as a long-term saving plan – but with additional benefits. While you won’t be able to access the money until you are 55, and this age may increase, it is still one of the most effective ways to say for retirement.
There are other advantages to using your pension as your long-term saving plans. Here we explore those advantages.
Contributions over a career
If you are someone who studies their salary statement each month, you may be aware that your contribution to the pension is being deducted. It will seem a lot of money.
Yet, we expect that most of you will not know the amount of money taken each month. You can, therefore, easily forget this money is being saved, and so it would do you no harm to continue this contribution.
Tax relief
One of the better benefits of paying into your pension scheme is that the contribution is taken before you are taxed. Therefore, this tax relief means money is paid into your pension rather than into the government coffers.
Contributions from your employer
Your employer is required to enrol you automatically into a pension scheme. Your employers will contribute too. Therefore, taking yourself out of the pension scheme is similar to refusing a pay rise. You will be accepting that you are working for less right now.
Tax-free lump sum
When you retire, you can claim 25% of your pension savings tax-free. You will have built up significant contributions throughout your career. Consequently, you can start retirement with tens of thousands of pounds in the bank.
In short
Rather than thinking about deferring your membership to the Teachers’ Pension Scheme, you may instead want to look to flexibilities and paying in more.
The content in this article was correct on 14th November 2020. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on your Teachers’ Pension Scheme. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.