Pensions – why everyone should have one

Scott Newbould CCBI PFA,  Cert CII (MP)
Scott Newbould CCBI PFA, Cert CII (MP)

For many years, pensions have been viewed as boring, expensive and locked away forever, not providing any real return on your money. In reality, these opinions are mostly false, with pensions actually providing one of the most tax efficient types of investment available.

As an example, for every £80 saved into a pension, before any investment performance, the government top this up to £100, with higher and additional rate taxpayers currently able to claim further tax relief through their self-assessment return. For those with earnings over £100,000 per year, a personal pension contribution could also result in them regaining some/all of their personal income tax allowance (depending on the level of contribution and their level of earnings), in turn, generating an effective rate of tax relief of 60%. I don’t know about you, but I don’t know of any other types of investment which can give a return of 60% before the money is even invested.

Most investment platforms will also now allow you to hold the same range of investments within your pensions as you can in your ISA or general investment portfolios. This means you have a large choice of investment options and if you have certain investments you prefer, these can likely also be held in your pension, rather than just being restricted to a particular provider’s own list of ‘recommended’ funds.

Retirement saving

As well as being able to provide beneficial reliefs and tax efficiency in respect of the investments held, pensions are also the main vehicle used to save for retirement. Some of us may be fortunate enough to have a Defined Benefit (DB) pension scheme, which provides a guaranteed income for the rest of our lives, but for the not so lucky (myself included), we must build larger pension pots in order to be able to have a sustainable level of income throughout retirement, which will also be able to maintain the lifestyle we have become accustomed to by that point. Many people do not realise the importance of this until it is too late; whereas if they had started saving for retirement earlier, this would ease much of the pressure as they approach that stage of life. With this in mind, why not start looking at your retirement planning now, rather than leave it to a point that may be too late?

Estate planning

As well as helping to save for your retirement, provide tax relief on contributions, and allowing you to invest in a wide array of investments, pensions can also be a useful tool in terms of estate planning and, in particular, Inheritance Tax considerations. Pension funds are not typically included within your estate on death, meaning that these funds can now also be passed through the generations of the family in a tax efficient manner, remaining outside of your estate and, therefore, outside of Inheritance Tax. This means that as soon as funds are invested into a pension, they immediately fall outside of your estate (rather than after two years with Business Relief qualifying investments, or seven years with more traditional types of Inheritance Tax planning, such as gifting or the use of trusts).

As a long-standing and trusted wealth management firm based in Northampton, not only can Cave & Sons provide clients with an ongoing financial planning service in respect of investments, pensions, protection and ultimately helping you to achieve your personal goals, we can also help you plan your retirement and demonstrate what this might look like through the use of cashflow modelling. If you would like to discuss your retirement planning, or any other area of financial advice in more detail, give us a call on 01604 621421.

Cave & Sons Ltd is authorised and regulated by the Financial Conduct Authority (FCA), Financial Services Register number 143715. Tax and Estate Planning services are not regulated by the FCA.

This communication is for general information only and is not intended to be individual product/investment advice, tax or legal advice. The views expressed in this article are those of Cave & Sons and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. You are recommended to seek professional regulated advice before taking any action.


For more information visit www.caves.co.uk.