Finance your future: How to plan ahead

What will your current pension savings mean for your future self? Many people are already retiring with far less income than they expect or need, according to research from Interactive Investor, the investment platform. Almost half rely on the state pension alone, which pays just £12,548 a year.A separate report by Pensions UK, looking at what level of income would meet basic retirement living standards, concluded that single retirees needed £13,900 a year for a minimum lifestyle, which does not leave a lot of room for luxury: £57 a week on groceries, a one-week holiday in the UK each year, £20 for gifts for friends and family, and no money to run a car. A moderate lifestyle, which stretches to a fortnight’s holiday in Europe each year and £59 a week on groceries, would require £32,700 a year.Now is the time to think about your futureIt pays to think ahead, whether that is engaging with what your workplace offers, setting up your own DIY pension, or a bit of both. This is especially true for the self-employed, only four per cent of whom save into a pension at all, according to figures from the Pension Commission.“Checking how much you have saved, reviewing your contributions and understanding how your pension is invested can help you assess whether you are on track to achieve the retirement lifestyle you are hoping for,” says Adam Cole, retirement specialist at financial company Quilter.“The earlier you engage with your pension, the more opportunity you have to make adjustments and see the benefits.”Previous generations were more likely to receive a generous pension, often a final-salary scheme with payments that would last as long as you needed them to, from their employer.Most of us are now reliant on defined contribution schemes.The money we receive in retirement will be based on how much we’ve paid in ourselves, where the money is invested, fees that are charged by the pension provider, and how long we have invested.Benefits of workplace schemes and personal pensionsEvery worker in the UK who has an employer and is earning at least £10,000 is automatically enrolled into a workplace pension.Your employer must pay in a minimum three per cent of your salary if you contribute at least five per cent, though many offer more.Making the most of this is a no-brainer as the employer contribution is in addition to your salary, says Maike Currie, vice president of personal finance at PensionBee.“It’s free money that you don’t want to leave on the table,” she says.A personal pension is a product that you set up yourself with an insurer, bank, building society or investment platform. This is what you would go for if you are self-employed, but they can also be beneficial to employees who want more freedom to choose where they invest.You don’t get the employer top-up but you still benefit from generous tax relief. If you were to pay £80 into a personal pension as a basic rate taxpayer paying 20 per cent income tax, you would receive £20 from the government, if you are a higher rate taxpayer paying 40 per cent income tax, you could pay in £60 and receive an additional £40.No workplace pension? The pros and cons of an IsaDoes it ever make more sense to invest in an Isa rather than a pension? An Isa is more flexible — you can withdraw your money whenever you want — while you cannot take your money out of a pension until you are 55 (or 57 from April 2028). Isas also allow you to save or invest without being taxed on any interest or returns, which makes them a useful tool for those wanting to save for the long term. But the tax relief of pensions is usually a more powerful attraction. “If you were to pay £200 a month into a stocks and shares Isa, which grew at five per cent for 40 years, you could have a pot of £305,204,” says Sarah Coles, head of personal finance at AJ Bell, and you’d never have to pay tax on it. “If you put the same amount into a pension and got higher rate relief on it, then the payments could grow to £457,806, so tax relief would have increased the pot by £152,602.” Plus, if you pay into a workplace pension, then it comes with a major boost from employer contributions so could be much bigger. The downside of a pension is that when it comes to withdrawing your money, though you receive 25 per cent of it tax-free, you are then taxed on it like a salary. If you are under 40, you can open a lifetime Isa for retirement saving. These allow you to save up to £4,000 a year, and the government will top it up by up to £1,000 a year, with the funds available when you turn 60. The government bonus makes this type of Isa as valuable as a pension for basic-rate taxpayers who do not benefit from an employer contribution. And all the income from it, unlike a pension, will be tax-free in retirement.When should you save into more than one pension?The auto-enrolment minimum payments have been criticised as not large enough to give people the comfortable retirement they might expect.If you want to save more, see if your employer is willing to do the same, says Philip Lewis, head of financial planning advice for Evelyn Partners. Many will match your contribution, and that is cash that if you started saving into a personal pension you would be missing out on.“Once you’re matched to the maximum and you still want to save more, that’s when you might look to set up a separate arrangement.”You might feel your workplace pension doesn’t offer a wide enough range of investment funds, and you may like a pension you can manage with a handy app or user-friendly interface from new online companies such as PensionBee, Penfold or Chip. Or you may be keen to open a new pension to consolidate old smaller pensions from previous employers, keeping all of your retirement savings on one screen.What about a SIPP?There are different types of personal pension. Standard accounts will require less research and knowledge on the part of the person saving into them. Like a workplace scheme, they will offer a few investment funds to choose from, and the hard work of selecting where you put your money is taken care of.A self-invested personal pension (SIPP) offers more choice, including assets such as commercial property, which appeals to some business owners who can use their SIPP to buy their business premises.“You can decide how your money is invested and choose whether to make regular contributions or pay in lump sums, adapting these as your needs change,” says Camilla Esmund, head of investor campaigns at interactive investor.“With platforms like Interactive Investor, you have thousands of funds, investment trusts, exchange-traded funds (ETFs), bonds, and single shares to choose from, so you can build a portfolio that suits your needs. There are also plenty of educational tools available, like the II investment coach, which can help you with these decisions so that they don’t feel overwhelming.”Some people will prefer the simplicity of keeping all their pension savings in one scheme, with their employer.“Unfortunately, a lot of workplaces don’t have the widest fund selection but actually for a lot of people that is not a problem,” says Lewis, who generally uses SIPPs for clients with high wealth.Workplace schemes are also normally cheaper, as are more simple personal pensions.“The key point is that it does not have to be one or the other,” says Esmund. “Your workplace pension and a SIPP can play different roles, provided you keep track of the charges, investments and total contributions across them.”For more information about Trading 212, visit here