How to Build your Pension Contributions in 3 Simple Steps
While it is easy for younger people to ignore the benefits of paying into a private pension plan, this is something that delivers considerable rewards when you finally finish your working life and retire. The issue is that pension rules are notoriously complex, and while experts such as Tilney break these down for clients they can be hard for laymen to process. Once you begin to understand the mechanics of how pensions work you can begin to leverage them for your advantage, however, creating a more positive and progressive financial future in the process.
Building your Pension in 3 Simple Steps
Once you understand basic pension plans, you can also choose the most suitable scheme and determine the best methods of optimising contributions. Here are three of the best ways in which you can pay into your pension plan over time: –
Open a Pension Plan from the Moment that you begin to Work
With earnings stagnating in the UK and middle-income families facing increasingly austere times, the most effective way of building your pension fund is to start as soon as possible. All companies are required to offer you a workplace pension scheme once you have completed your probation period, and while you have the option to opt-out of this you will automatically be enrolled unless you ask not to be. It may also be worth maximising your own contributions, as this will build your funds quickly and to the highest possible value.
Leverage your Employer’s contributions too
In all workplace pension schemes, it is mandated that employers must contribute and the government has even set minimum levels for companies to comply with. In general terms, employers will pay 1.0% of your qualifying earnings until April 2018, at which point this will increase to 2.0% and then 3.0% in 2020. This could ultimately equate to a larger pension and a brighter financial future.
Increase and diversify your income streams
Finally, it is important to understand the intrinsic link between your income and the size of your pension fund. More specifically, higher earnings enable you to commit more towards a private or self-invested pension fund, particularly if you aim to save a fixed percentage (i.e. 10% or 20%) depending on your other costs and expenses. You may choose to freelance, for example, either to supplement an existing full-time wage or as your primary method of working. If you choose the latter option, you will need to create a personal pension plan that includes a number of investment vehicles.