What pension is best for you?
When it comes to saving for your retirement, there are lots of options. Many people will only use one or two of these.
Because saving for retirement is so important, the government offers generous tax benefits, to encourage us to make our own pension provision. To maximise your retirement savings, you might want to contribute to more than one pension, e.g. a personal pension and your company pension scheme.
Here are some of the different types of pensions and investments you can use to achieve your retirement goals:
- State Pension - learn more about the pensions provided by the state.
- Stakeholder Pension - usually these pensions are cheaper and more straightforward than personal and company pensions, but it depends on the scheme’s rules. However, they often offer less investment choice
- Personal Pension - a personal pension plan allows you to build up a fund which is then used to provide a lump sum and income at retirement
- Self Invested Personal Pension (SIPP) - this is a type of personal pension plan which lets you choose from more investments. SIPPs are generally only suitable for experienced investors who have the time and experience to manage their own investments
- Company Pension - set up by employers, these schemes offer a range of benefits
- Alternative savings - ISAs let you save for your retirement tax efficiently as you won’t pay UK Income Tax or Capital Gains Tax on any returns (subject to applicable limits). Onshore and offshore investment bonds – sometimes called insurance or life bonds – are another option. In some cases, they let you enjoy significant tax benefits.
Venture Capital Trusts (VCTs) - these UK Government initiatives offer attractive tax reliefs. They’re designed to encourage investors to support the UK economy by investing in small, higher-risk firms in need of expansion capital. A VCT invests in private companies that are not listed on the London Stock Exchange; however the VCT itself is listed. The generous tax reliefs are designed to encourage and compensate investors for buying into businesses that are considered high risk, due to their size and short track record. VCTs are not suitable for many investors but may appeal to:
- UK-resident Income Tax payers, looking to offset any Income Tax liability
- High-income individuals facing limitations on the tax relief they can claim on pension contributions
- Individuals ready to invest in private companies in return for generous tax reliefs, and who accept the high-risk nature of these investments and the risk of not being able to sell the investment when they want. Investors can lose all of their capital in VCTs.