In your 20s or 30s – What do the pension rule changes mean for you?

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Pensions

Julie Hutchison

29th April 2015 at 3:02pm

The new pension rules mean there’s much more flexibility and choice over how we take our cash in retirement than ever before. Whether you’re in your early 20s or bidding farewell to your 30s, it’s time to get to grips with pensions so you can take advantage of the new rules. The sooner you start paying into your pension the more time and opportunity your money will have to grow. And the great news is that with the pension changes you’re likely to be starting a good savings habit years earlier than previous generations.

The sooner you start paying into your pension the more time and opportunity your money will have to grow.

Good news

If you’re aged 22 or older and are employed with a salary of at least £10,000 a year, you might find that you’ve automatically been made a member of your pension plan at work, and your monthly saving habit has been started for you under the auto-enrolment rules.
If you fall into this bracket, you’ll be paying 4% of your salary into a pension by 2018 and your employer will be paying in 3%, too. The tax man then tops this up with tax relief.

Traditionally, many people didn’t start paying into a pension until they were in their late 30s, or early 40s. That means you have almost double the amount of time to build up your pension savings – so make it count.

You have choices

You can decide where your pension savings are invested – this could be suited to you if you’re a confident investor. But don’t worry if that feels too daunting to start with, automatic investment options are available too.

Remember though, you’re still young and have time on your side so now’s the time when you can afford to take more risk with your investments, as you have a long time ahead until you’ll be accessing them.

Self-employed?

If you’re self-employed these automatic pension saving rules won’t apply to you, but it’s easy to start your own pension online, with a simple personal pension option. You’ll be in control of when you start, or stop and you can change how much you pay in. You’ll benefit from a tax relief top-up from the tax man too. That means for every £80 you pay into your pension, this becomes £100, for a basic taxpayer.

Don’t forget you can still pay into your pension while you’re not employed (up to £2,880 which becomes up to £3,600 with the tax relief top-up). Or, if you’re expecting your partner’s pension contributions to provide for both of you in future years, focus on building up their pot.

No matter how young you are, it’s never too early to think about your pension – it’s the key to funding the fun you want to have in the future.

 

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The information in this blog or any response to comments should not be regarded as financial advice. A personal pension is an investment. Its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in April 2015.