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Pensions Overview

What is a pension plan?
In simple terms, it is a pot of cash that you and your employer, can pay into – which you get tax relief on, as a way of saving for your retirement. Then, at retirement, you can draw money from your pension pot or exchange the cash with an insurance company for a regular income to fund your retirement, called an annuity.

Since 2015, from the age of 55, you are able to access your pension plan more flexibly, taking as much or as little cash as you like, whenever you like. It is worth noting the Government have said this will rise to age 57 in 2028, so could have an impact on your pension planning. 

Benefits of a pension

The key benefit to a pension plan is the tax relief, which comes in two forms depending on whether you are a basic-rate or higher-rate taxpayer. You get some tax back on the money you put into a pension, whilst gains from the investments you make with that cash are largely tax-free.

What is auto-enrolment?
Pensions for employees are nothing new – they have been a common staff perk, particularly for people working for big employers, for many years. However, not all employers have offered pensions. Auto enrolment now requires employers to offer employees a pension, to automatically enrol you in the scheme and crucially, to contribute on your behalf.  

What is 'salary sacrifice'?
Paying into a pension allows all taxpayers a tax break. But for an extra and easy bonus, salary sacrifice is worth considering. Salary sacrifice applies to a number of workplace benefits such as childcare vouchers or cycle-to-work schemes, not just pensions. This refers to when you give up some of your monthly earnings and your employer puts it towards something else – in this case, pension contributions. As it comes out of your PRE-TAX salary and straight into your pension, you pay less national insurance (NI). Your employer will also pay less employer's NI which gives them incentive to operate the scheme.

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