Actually this is a pretty good
question, given that several million people will have one by 2017 and as I know
from years of employee pension talks that not many people actually understand
what they are.
The technical answer probably runs
something like “a tax efficient savings vehicle with limitations around
contributions and decumilation” – which means nothing to anyone outside the
pensions industry!
Simply put its “one way of saving
for retirement that’s got a few incentives to it”. Now I do like a good pension
plan. It’s one of the ways that the Government encourage people to save.
If a person puts in 80p then they
get the other 20p they’ve paid in income tax put into the pot as well (more if
they’ve paid a higher rate of tax). It’s invested in the pot and hopefully
grows tax efficiently in the pot until you take it out (although the value of
the investment can go down as well as up).
Once the money’s in the pension, it
can’t be accessed until you are 55 – which is great for stopping you spending
it on holidays / cars / extensions – it’s not supposed to be for that type of
expenditure.
There’s been a lot of bad press
about pensions over the years and I’ll be the first to admit that they aren’t
perfect. However, for a lot of people they are a very good way of saving for
retirement. We are helping employers cope with new legislation where they have
to auto-enrol employees into a pension. You’ll find more information on our website.
Rob Barksfield
Auto-enrolment Consultant
Telephone: +44 (0)20 7893 3972
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