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7 Powerful Tips for Pension Planning


There are many things to consider when pension planning; a subject that can be rather overwhelming for individuals of all ages. At Magenta, we place focus on planning to achieve set financial goals that will help our clients achieve happiness in their lives; whether it's their aim to retire abroad, travel the world or simply enjoy the freedom of a workless lifestyle. Below we have listed a series of pension planning tips to help turn your later life visions into realities.

Make a plan!

Although no one has a crystal ball to see the future, what we do know is that we can make educated estimates and assumptions, which can help us to get our finances in order for our life goals, be these in two, ten or even 50 years time.

You should start planning for your retirement as soon as possible, allowing you to ensure you are on track to meet your later life goals and dreams. At Magenta we can help by building a Lifetime Cashflow Forecast, incorporating your life goals, work objectives and family situation, so that you can see what your future could look like, enabling you to make changes if required. Recently, Magenta is seeing more young professionals planning for the future and taking control of their destiny, by building financial plans to secure their life goals now and for many years to come.

Know your employee rights

Whilst pensions were once a luxury for those that could afford to put money aside things have changed. Now, all employers must by law offer a workplace pension scheme. This means you, your employer and the government will pay into your pension if you're enrolled into a workplace scheme. Your employer must now pay at least 1 percent of your annual income into your pension pot. Be sure take this option and don’t opt out – to ensure you are taking advantage of the contributions from your employer. If this is yet to be actioned by your employer, be sure to bring it up.

Be aware of pension scams and scandals

As mentioned in a recent blog post, bad press, scams and scandals have put many people off looking into their pension options. Whilst this is something you need to be aware of, do not let it to deter you from exploring safe, secure pension options, offering you significant tax advantages.

Understanding tax

Understanding the significant tax advantages a pension gives you is really important. The Government adds money to your pension every time you make a contribution (another 20% in tax relief) as an incentive for you to save. Even non-taxpayers can get this “free money” (for example if your spouse isn’t working or is on a career break) and higher rate taxpayers can claim further tax relief when they do their tax returns. Whilst your pension is invested – all your money grows tax free.

Withdrawing from your pension pot is another area you will need to put some thought into. When you take money from your pension pot, under current pension rules, 25% will be tax-free. However, you will have to pay Income Tax on the remaining 75%, whatever way you choose to take your income. It is important to factor in taxation into your pension planning, staying up-to-date with tax laws and government introductions that could impact your pot. Magenta can help you understand the most tax efficient way to draw your pension when the time comes, mitigating income tax as far as possible for you.

Understand what happens to your money after you die

Although your happiness and life aspirations will be at the core of your pension plans, it is vital that you think about what could happen to your money after you die. Whilst not an easy conversation to have and not nice to think about, expressing your wishes for your money is a must. It is worth noting that If you die before age 75 your pension can be paid to your beneficiaries tax-free. However, if you die age 75 or over, your beneficiaries can take the money in cash subject to income tax at the beneficiaries' marginal tax rate.

Review you plan on an annual basis

The benefits of reviewing your pension plan are plentiful. From ensuring they still support you on your preferred life journey to keeping abreast of pension regulations, looking back over your plan every twelve months is highly advisable. Magenta’s financial planning service can ensure that you always know if you are on track and up to date.

Use a professional financial planning service

Pension planning can be a minefield. Income options, taxation complexities and pension limits mean that doing all you pension planning yourself can lead to expensive mistakes. If you are looking for a friendly and professional adviser to help guide you and assist in your pension planning, Magenta would be happy to help.