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Let’s take a closer look at how your pension plan works.
Who pays in? Your pension plan is money for you for the future.
That means it’s up to you to pay in what you can and make sure you’re on track.
There may be some minimums set by the government or your employer.
Don’t worry, you won’t have to go it alone, your employer will pay in too.
Let’s take a look at how this works for you.
The figures shown are the percentage of your salary that you and your employer could pay into your pension pot each month.
If you pay this, your employer pays this, which means a total of this being paid into your pension pot.
Let’s look at an example.
If this was your pensionable salary, and you were to pay this, your employer would pay this, meaning a total of this going into your pension pot each month.
Pensions receive tax benefits on payments made so you may also see payments going in called tax relief.
How this works depends on the type of pension scheme you’re in, and how much you are paying.
Pension plans are a tax efficient way to save as you receive valuable tax benefits from the government.
But what is happening to your money?
Your money is held in investments within your pension pot with the aim to make it grow as much as possible over the long term to when you retire.
However, investments can go down as well as up in value, and there’s always a chance that you will get back less than what was paid in.
You can choose where your money is invested and the risk you’re willing to take.
For example, if you’re far off from retirement, you may choose to take more risk than someone closer to retirement.
Investing early could give your money more time to potentially grow.
For more information about different types of investments and the funds you could invest in, visit your company pension website.
How can you access your pension savings?
Currently, when you turn age 55, you can choose how to access your pension savings.
This minimum age which you can take your pension savings, will increase to age 57 in 2028.
The way you take your benefits will depend on what matters to you and the kind of lifestyle you want.
You can normally take up to 25% of your pension savings as a tax-free lump sum.
What you use it for is up to you.
Keep in mind, the tax rules can change.
Your own circumstances and where you live in the UK will also have an impact on tax treatment.
What’s important though is to make sure you have enough money to keep you going for the long term.
You can use the rest of your pension pot to create an income for yourself or take it all as one or more lump sums.
Everything above your 25% tax-free cash will be taxable.
If your type of pension plan lets you, you can take a flexible income, which means your pension savings stay invested, but you can take your money as an income to meet your changing needs.
How long your pension pot lasts, depends on how much you take out and how your investments perform.
Remember, as with all investments, there is a risk involved and you could run out of money.
If you don’t like uncertainty and prefer the reassurance of an income that will last for the rest of your life, you can use some or your entire pension pot to buy a guaranteed income for life.
This is called an annuity.
Make sure you shop around to get the best deal.
What happens if you die?
If the unthinkable happens, any money remaining in your pension pot can normally be passed on.
Please ensure you’ve updated your beneficiaries, which you can now do online, or using our mobile app on the go.
To sum up, you and your employer pay into your pension plan.
You will receive tax benefits from the government.
Money in your pension pot is invested so it has the potential to grow, but there are no guarantees.
There are different ways to access your pension pot when you start to take your benefits.
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