It is important to start thinking about your financial future far in advance. Your retirement may seem like a long way off now, but with people living longer, healthier lives, you’ll need to put away more money to last you for the rest of your life.
Pensions are widely regarded as the best form of investment for retirement. There are some people, however, that would disagree with this sentiment.
So, the question you might be asking is “should I invest in a pension?”
In this article, we’ll look at the pros and cons of investing in a pension as well as how to invest in a pension fund.
Pro: You Get a Tax Relief
One of the major benefits of investing in a pension scheme is that you will benefit from tax relief on the money that you put in.
If you’re paying into a pension scheme via your employer, they’ll generally take your pension contributions from your salary. This will be done before your tax is deducted.
That way, you’ll only be paying tax on the remaining salary meaning your pension is tax-free.
However, if you’re paying into a private pension fund, you’ll pay income tax on your earnings before you make any contributions to your pension.
Following this, the pension provider will claim the tax back from the government and this will go into your pension.
Con: Lack Of Access
One of the downsides to taking out a pension is that you generally can’t touch the money until retirement. This can leave you stuck if you need to free up some of your equity in an emergency.
An alternative here would be to invest your money in another way so that you can take it out whenever you need to.
Pro: Compound Interest
The sooner you start paying into your pension fund, the better. This is because of compound interest.
How much can you invest in a pension is up to you, however, the way that compound interest works is quite simple.
You’ll get a return on your investment in the first year, and in the second year, you’ll earn a return on the original sum and the first year’s return.
Con: Low Returns
There is a risk that you won’t see a lot of return on your investment. If you want to see your money working better for you, you may wish to invest in property or stocks and shares instead.
Some people may feel like they have been mis-sold their pension when they realize the yield is not what they expected. In this situation, these templates could come in useful.
Investing In a Pension
Investing in a pension is a good, low-risk way of planning for the future. While there are other forms of investment out there that may yield higher returns, your money will be safe.
Providing you’ve done the math right, you should be able to live off what you have saved.
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