Pension warning: Britons turning down ‘free money’ from taxman – how to boost income | Personal Finance | Finance

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While the number of those dipping into their savings accounts has gone down from 33 percent to 30 percent, more now intend to spend more on their credit card or cut back on their private pension, figures from Barnett Waddingham. Workplace pension contributions seem to remain unaffected by peoples’ budget adjustments – but December has now shown an increase of people reducing their private pension contributions suggesting a growing number of individuals cutting their long-term savings to deal with the immediate impact.

Whatever retirement looks like for individuals, investing wisely is likely to be a key factor in achieving it. Pensions are there to give people an extra ‘leg up’.

When people make a contribution to their pension, the Government adds money. This is called ‘tax relief’ and is the key advantage of using a pension. Not everyone is aware of this special helping hand, but it can have “a considerable impact on the size of your investment pot and the income you are paid,” an expert said.

Mark Futcher, Partner & Head of DC at Barnett Waddingham said: “In face of the worsening economic climate, it’s no surprise that people are continuing to adjust budgets to see themselves through the winter period – with some demographics taking more drastic measures than others.

“And while some trends may reflect an adjustment for the festive period, these figures highlight a continued concern for people’s savings in the long-term.

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“Reassuringly, cutting back on workplace pensions hasn’t become a growing trend, and people should only consider this as a last resort. While it may help to alleviate immediate financial pressures, this still means turning down ‘free’ contributions from the taxman and your employer.

“Hopefully the trend towards cutting private pensions doesn’t translate into the workplace, and we advise anyone considering this to talk to their employer first. They may be able to up employer contributions to workplace schemes or even consider continuing to pay employee contributions if you need to pause contributions temporarily. “

Rob Morgan, Chief Investment Analyst at Charles Stanley explained the Government will automatically top up one’s contribution with 20 percent basic rate tax relief. Higher-rate and additional-rate taxpayers may claim up to a further 20 percent and 25 percent respectively back through their tax return.

If someone is employed, they will also be entitled to pension contributions made by their employer, as long as they keep opted into their work scheme and make the required level of contributions themselves.


He added: “You should generally prioritise this form of investing as it is often easily the most efficient way to provide for retirement.”

As the New Year approaches, many people may start to set goals and resolutions, however it may be the perfect time to plan for the future, and save and invest.

Emma-Lou Montgomery, associate director for personal investing at Fidelity International is urging Britons to make their retirement savings a priority in 2023.

She explained that when finances are tight, too often people prioritise other expenses over their pension savings. But a pension is a tax-efficient way to save.

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“And if you’re not yet saving for retirement, a great short-term financial goal would be to get started!”

In order to save and invest for the future in a methodical and efficient way, people can set goals for different ‘pots’ of money and consider whether they are short term or long term in nature.

Mr Morgan explained shorter term needs are generally considered to be less than five years, such as putting money aside for a new car or for a house deposit for example. Longer term goals include getting ready for retirement or making provision for school or education fees likely to be incurred in ten or more years’ time.

He said: “The cost of living squeeze may mean a setback or mean a reassessment of priorities, but this still principle holds true and you shouldn’t be put off the benefits of long term investing in difficult times when the headlines are negative. In the long run these can even be good times to put money to work provided you can afford to do so.

“Don’t forget to use appropriate tax ‘wrappers’ for your investing goals such as a pension for retirement, ISAs for earlier access and Junior ISAs for children. By placing your money in pension or ISA wrappers you can save tax and make your investments work harder for you.

“You won’t pay capital gains tax on any profits and there’s no tax on dividends from shares or the income earned on bonds.”

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