By way of a process known as ‘compound interest’, any return you make on your investments builds your capital and gives you a larger base to grow in the future. This can have a dramatic result on your savings over the long-term. If you delay your pension, you may have to make up ground at a later date. Moreover, by saving inside a pension, you will benefit from the tax-relief available. For a basic rate taxpayer, you can see an immediate boost of £20.00, on a net contribution of £80.00.
Higher and additional rate taxpayers, can also claim further amounts through a tax return.
Now, if we were setting up a market stall and we offered you £100.00, in exchange for £80.00, we would have a lengthy queue of takers. The same premise is applied to your pension savings.
Conversely, it is never too late to start a pension. This is one of the biggest myths in financial planning. The tax-relief alone is usually enough of an incentive to make a pension contribution worthwhile.
Are you retired? If you have not yet reached age 75, then you could be missing out on £720.00 in tax-relief, with a gross (annual) contribution of £3,600 (£2,880 net).
It is worth noting that you cannot access your pension benefits until you turn 55, under current legislation. This is increasing to age 57 in April 2028.