How to get at least £15,000 FREE Money for your Pension Retirement Savings

How to get at least £15,000 FREE Money for your Pension Retirement Savings

How much do you spend on a night out I asked? Well, most night outs it could be £60 and probably gets up to £200 a month. That’s impressive I thought.

What if I told you that giving up £60 out of the £200 you spend a month will add almost £45,000 to your pension retirement saving? Wow, that much?

Yes and even more if you were a higher rate tax payer. I had no idea about all these please tell me more he asked. Actually one of the problems we have with saving and investing for a pension is lack of engagement and financial education to the point that about 80% of us in the UK are not saving enough for our retirement according to Pensions and Lifetime Savings Association this statistics would be worse if not for Auto-enrolment and NEST Pension

Talking about Pension and Free money

Most times when I get into my stride talking about pension savings and the importance of it, I’m quickly given a raft of excuses why pension comes at the bottom of the priority list for most people. Some of the excuses include

1. I am saving to buy a property, once I get on the property ladder then I can think about pensions

2. I don’t understand pensions, it’s too complex!

3. I’m going to invest in properties and live off the rental income when I retire

4. I don’t have enough disposable income to balance my household budget now so I can’t really think about the future and retirement right now

5. Isn’t there a state pension, can’t I just retire on that?

6. My money will be tied up for too long and I’ll probably be dead before retirement age

The list goes on. Some of the reasons above are fair in the sense that the satisfaction we get from reaching some of the milestones such as owning a property is significant and does actually provide financial flexibility to do other things.

However, I see no reason why pension savings cannot be carried out alongside other plans. I set out a couple of cases for putting pension contributions up the priority list and getting thousands of pounds for FREE.

Case #1 You get FREE MONEY!

The first is that there is usually a lot of free money supporting your pension contribution once you decide to start contributing. I will use a simple example to illustrate how you can get thousands of pounds for FREE.

  •  Let’s assume you earn £30,000 a year

  • Based on auto enrolment contribution rates - If you contribute 3% of your salary then your employer has to contribute at least 2% of your salary too. In most cases, employers that have pension plans have even higher contributions to support their employees

  • Finally, your contributions are not taxed

Table 1 - Pension

In the example above, the decision to consume £60 today is costing their future self £65 of free money!

Well, you could argue that your £60 today will help you buy a house or something else that has the potential of doing better than your pension. Perhaps this may be the case but you are starting with a huge a disadvantage.

How much are you better off by if you chose to contribute into your pension pot compared to taking the equivalent contribution as disposable income today?

Table 2 - Pension

So you could argue that there was £20,000 of FREE MONEY over the 25 year period if we ignore investment returns. Allowing for 6% per year of investment return then the amount of free money is even more at £45,000.

There is even more free money on the table if you are fortunate enough to earn more and fall into the 40% tax band.

Let’s assume that the salary this time is £50,000 a year. Contributions are similar to those used above.

Table 3 - Pension

In this example there is £40,000 of FREE MONEY to be had and allowing for investment returns, the amount rises to £93,000!

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Case #2 The benefits

Apart from supplementing your other sources of income in your retirement, your pension has other added benefits. 

  • Tax planning – If you pass away before the age of 75, then the money in your pension goes to your family free of tax. After the age of 75 they still get the money but pay their own marginal tax rate when they take from it. No inheritance tax is applied to your pension pot

  • Access to your pension – If I haven’t already mentioned, you can access your pension pot once you get to age 55 and get 25% of the pot tax free. Not a long time for your money to be ‘tied down’ compared to how much you will be getting back

  • Wealth continuity and net worth – Some of us think in terms of net worth, this is a great way to boost your net worth with the support of your employer and the government.

Free Money Pension

What if you are self employed?

You could argue that there is no employer to top up your pension so why bother. Especially with the sobering statistics that 45% of self-employed workers between the ages of 35 and 55 having no private pension as stated by Money Advice Service

The good news is that even as a self-employed, there is still positives in contributing to a pension and these include 

  • Your contribution is treated as an expense so not subject to corporation tax

  • You are diversifying your sources of income for retirement and tax planning

  • Finally the tax treatment of your pension pot is still favourable - You can take 25% of what has been built up tax free when you come to retire.

 So how do I go about getting my hands on these thousands of pounds of FREE cash 

I hope you are now motivated to start saving into your pension? Here are very simple steps you can take 

  1. Check if you have a pension at work or auto enrolled. If you are not sure how to proceed then drop me a line

  2. If you have one already then try to understand how much contribution is going in from your pay and your employer. If their contribution increases as you contribute then I suggest you try to match to get the best out of them. Again feel free to email me and I’ll tell you how

  3. Don’t worry too much about where to invest as pension funds have what they call default funds which have been designed for people that are not investment savvy. Most good schemes spend a lot of time making sure this is fit for its members

  4. Finally once you have started contributing make sure you update your expression of wish form to ensure that if anything happens to you, the money does to your loved ones. Ask your pension provider or your Human Resources department how to do this.

I really hope this has caused you to think a bit more about saving for your retirement. Your state pension alone will not be enough for you in retirement (besides you have to wait till you are 65 years onwards to access it). As part of your new year’s resolution, try to take saving into your pension up your priority list. Don’t forget to subscribe if you want to hear more from us. Also download you FREE calculator here to find out how much you are missing out on by not contributing into your pension plan.

Good luck and always strive for better living.



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