The wonder of pensions

If you google the meaning of a pension you get variations of the following:

‘A pension is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments.’

Exciting stuff.

In simple terms, a pension scheme is just a type of savings plan to help you save money for later life however, the way in which these plans work, and the built-in tax benefits means they are not to be ignored or dismissed.

How many times have you thought about your pensions held ‘somewhere’ with a provider whose name you can’t remember holding an amount of your money that you haven’t looked at in years? If you had the same amount of money in a bank account that you could readily access, it’s likely that you may be a little more up to date with the details.

When you save into a pension, the government likes to give you a bonus as a way of rewarding you for saving for your future. This comes in the form of tax relief. When you earn tax relief on your pension, some of the money that you would have paid in tax on your earnings goes into your pension pot rather than to the government. Tax relief is paid on your pension contributions at the highest rate of income tax you pay. So: Basic-rate taxpayers get 20% pension tax relief Higher-rate taxpayers can claim 40% pension tax relief Additional-rate taxpayers can claim 45% pension tax relief In Scotland, income tax is banded differently, and pension tax relief is applied in a slightly alternative way.

Another popular feeling is that it’s too late to contribute to pensions. No matter how old you are, does obtaining additional funds onto your savings from HMRC sound like a bad idea? Perhaps not. By the time it feels ‘too late’ most people have accumulated pots with various providers, through employment or periods of time when it seemed a good time to save into a pension. This usually leaves a situation where you want to start looking at what your income will look like if you reduce working hours or stop working completely and it can be a daunting task trying to make sense of it all.

The other consideration is what these older style plans will actually let you do with your money when you want to get your hands on it. In 2015 the government made huge changes to the pension regime, providing you with a great deal more flexibility in how to access your money held in pensions. In theory, the prospect of receiving tens of thousands of pounds in a single lump sum could be very tempting indeed but at this point in your life, being a little more careful may be wise. Remember, this money, along with your State Pension and other assets needs to support your years not working so that you can enjoy yourself.

Gone are the days where your pension was a boring topic of conversation, when they were just something you had at work, that you paid very little attention to. Today, pensions are a great way to save in a tax efficient way for just about everyone, to make sure the money you save is there for you to access in the way you want to, when you want it.

If you would like some advice in relation to the above, feel free to contact TP Financial Solutions on 01524 920015. For more information you can visit their website on


Please Note:

Tax treatment varies according to individual circumstances and is subject to change. 

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.