Q

What's the best way to save for retirement?

A

There are a couple of great HMRC-backed retirement savings plans: SIPPs and ISAs.

We’ve got some bad news. Someday, if you’re lucky, you’re going to be old. The good news is, by then, you probably won’t have to work, so even though your knees may hurt a little, you’ll be able to see movies cheaper and sleep in every day of the week! Since the current state pension rate is a mere £159.55 a week, this senior Shangri-La will be available to you only if you have enough socked away for your retirement. And the only way you’re going to have enough saved up for your retirement is if you start saving for your retirement early.

And that means you really have to start now, and it doesn’t matter if you’re 20, 30, or even 50. It’s truly never too late to start. So how are you going to save for your retirement? The answer is with pension funds, which are HMRC-approved tax-efficient savings vehicles that come in two flavours: workplace and personal. If you’re a full time employee of a company over 22 and earn more than £10,000 a year, your employer is legally mandated to provide you with what’s called an occupational or company pension — you contribute to the fund, administered by your employer, and most companies kick in a portion of your salary, often between 3% and 5% of your income.

Outside of this employer scheme, are personal pensions, the main varieties being the SIPP, short for self-invested personal pension, and ISA’s, or Individual Savings Accounts. SIPPs offer similar tax-deferred benefits as employer provided pensions, but afford a greater flexibility since you — and not your employer — are ultimately deciding what you invest in. ISAs provide a similar freedom, but offer you tax relief by not assessing capital gains or income taxes on your investments’ growth (up to an annual limit.) Plan and save now, so you’re able to relax—and party your septuagenarian pants off—later.

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