This comes days after inflation rose to a 40-year high of 9%, due to soaring energy prices in April.
With finances stretched like never before for millions, it’s important not to let today’s troubles turn into potentially even worse problems later by sacrificing long term savings for short term needs. That’s why the experts at money.co.uk have put together a handy guide with all the need-to-know information when it comes to pensions.
James Andrews, Senior Personal Finance Editor at money.co.uk, said: “With the cost of living crisis affecting millions, and consumer confidence plummeting, it’s tempting to focus entirely on short term plans to get you through the current situation.
“But now could also be the perfect time to think about your long-term finances and ensure you have enough money put away to ensure a comfortable life after you retire.
“There are three main types of pension. The workplace pension is what most people who are in work voluntarily contribute to with money from their monthly pay packet, or what your employer guarantees you based on your salary and service.
“The good thing about this option is that you don’t have to lift a finger. Your contributions are managed by an investment firm, ready for you to access when you finally put your feet up. At that point you can take the cash out as and when you need it or receive a monthly payout based on your old salary.
“Most workers will also be entitled to the State Pension, which is provided by the government and eligible to anyone with a minimum number of qualifying years of National Insurance contributions.
“If you’re in work now or retired after April 6, 2016, you will get the new State Pension, as long as you’ve paid National Insurance for 10 years. Find out what age you will qualify for the State Pension through the government website. People with at least 35 qualifying years currently receive the maximum payout of £175.20 a week.
“If you’re financially savvy and have the motivation to dedicate your own time to pension planning, then a Self Invested Personal Pension is another option. You can invest in one of these in addition to a workplace pension and offers the opportunity to take control of where your money goes. Think of a Self Invested Personal Pension as a ‘DIY pension’, as you are responsible for managing it until you retire.
“When opting for a Self Invested Personal Pension, you must pick a provider to invest through, choose which funds or assets you want to buy and how much you put into each one, and then manage the pension online.
“All pensions carry an element of risk, due to them being investments, but a Self Invested Personal Pension could be considered a greater risk due to the fact the decisions are all up to you, as opposed to a fund manager or similar professional.
“Another option is to save money over the course of your working life in an ISA, which allows you to put away £20,000 a year without paying tax on the interest you receive. The pros of this are that you can access the money whenever you want and you have control over the amount of risk you take as you'll decide the investments that you want to make.
“If you’re between the ages of 18 and 40, you can open a Lifetime ISA - this adds 25% to the first £4,000 you save each year provided you don’t access your cash before you turn 60. Money in a Lifetime ISA can be held in cash like a regular savings account or invested in the markets like a SIPP or stocks and shares account. Growth in your cash is tax free, like with a pension, too.
“Pensions for many of us are a daunting prospect, especially in the midst of a cost of living crisis, but regardless of your situation there are experts who can assess your situation and advise you.
“To compare the best pension plans from all the top providers, use money.co.uk’s handy comparison tool: https://www.money.co.uk/pensions.”