Saving for retirement

A pension is a flexible way to save for your retirement

With their unique tax relief savings boost, varied investment options and flexible ways to take your income, pensions are the still the smart way to save for retirement.

Why pensions work

When you’re used to a certain standard of living, the state pension alone may not be enough. That’s why it pays to start a pension as soon as you can. The LFS Personal Pension Plan offers government tax relief, stock market investing and tax-free cash when you retire.

Start saving now

The sooner you start saving in to a pension, the more time you’ll have to build up a pot of money to use when you retire. But even if you haven’t started saving yet, it’s not too late to get started.

This is because, as you save in to your pension, not only should your savings accumulate as you invest more money, but any growth in your investments will also grow. This can make a big difference to your pension savings over time, however it is important to note that there is no guarantee that fund values will grow and you could get back less than you invest.

How it works

Amanda started saving into her pension when she was 25, so her savings have been building up for 40 years. During this time she has invested the same amount as James, but her savings are worth more because any growth has had more time to accumulate.

Starts saving £50 per month from age 25
Total savings at 65 £24,000
Value of pension pot at 65* £46,303

James started saving into his pension when he was 45, so his savings have been growing for 20 years. Although he has invested the same amount as Amanda, any growth in his savings has had less time to accumulate, so consequently his pot is worth less.

Starts saving £100 a month from age 45
Total savings at 65 £24,000
Value of pension pot at 65* £32,830

*Assumes a growth rate of 3% each year. Does not take into account charges and fees.
This example is for illustration only. Fund values can fall as well as rise and there is no guarantee your pension will grow each year and you could get back less than you invest.

Get a tax relief boost

As an incentive to save for your retirement, the government gives you tax relief on the money you pay in to your pension (subject to certain limits) even if you don’t pay tax. This tax relief is added to your savings to help boost your pension savings at no extra cost to you. And if you pay higher rate tax or additional rate tax you can reclaim the extra tax relief from HMRC.

How it works

Dan pays basic rate tax relief at 20%. So, when Dan saves into his pension, the government adds back the 20% Dan would normally have paid in income tax to his pension contribution, giving him a tax relief ‘boost’ of 20%.

Monthly contribution £100
Basic rate tax relief £25
Total monthly investment in pension £125
Total annual tax relief ‘boost’ £300

Paul pays higher rate tax relief at 40%. When Paul saves into his pension, the government automatically adds back 20% of the 40% Paul paid in higher rate income tax to his pension contribution. Paul then claims the additional 20% he has paid through self-assessment. This gives him a tax relief ‘boost of 40%.

Monthly contribution £100
Basic rate tax relief £25
Total monthly investment in pension £125
Additional tax reclaimed through self-assessment or by contacting HMRC £25
Potential total annual tax relief ‘boost’ £600

Tax rules can change and the value of any benefit will depend on an individual’s circumstances. A tax charge may be applied if contributions to all your pensions exceed £40,000 each year or £10,000 if you have already accessed your pension flexibly.

Don’t just save, invest

Pensions are a long-term investment. This means you typically invest for more than five years and in many cases for significantly longer than this. So, rather than leave your money in a bank account where it will only accumulate interest, you can instruct your pension provider to invest your money in stocks and shares.

Over the years, the aim is to grow your pension savings by adding money regularly, but also by increasing the value of your investments.

How it works

Pete is a basic rate taxpayer who has £20,000 in his Personal Pension Plan and pays in £100 a month. He has chosen to invest in the Lifestyle Profile 1, which splits his savings between the Multi-Asset and the Cautious Managed funds. His savings grow because of his regular payments but also through the gains of his underlying investments.

Fund value as at Jan 2015 £20,000
Investment gain over one year, assuming 3% growth £600
Charges and other deductions -£22.50
Annual payments into pension £1,500
Fund value as at Jan 2016 £22,077.50

This example is for illustration only. Fund values can fall as well as rise and there is no guarantee your pension will grow each year and you could get back less than you invest.

Tax-free cash at retirement

You can take up to 25% of your pension savings as tax-free cash any time after you reach age 55.

Your remaining savings will be taxed as income when you take them out of your pension. And with the new pension freedoms you now have more choice about how you take your savings. Find out about your choices at retirement.

Sarah is 60 and wants to take her tax-free cash to pay off her mortgage. She works and pays basic rate tax.

How it works

Greg is 60 and wants to take tax-free cash from his pension. As he is over 55 he can take up to 25% of his pension savings tax-free. He has not yet retired, so doesn’t need to take an income until he retires at 65. When he decides to take more money from his pension, it will be taxed at his usual income tax rate.

Pension pot value £80,000
25% tax-free cash £20,000
Remaining pension pot £60,000

Create a lasting legacy

You can pass on your pension to your beneficiaries tax-free if you die before you reach the age of 75. This can be taken as a lump sum or an income.

If you die after the age of 75 you can still pass on your pension, but it will be taxed at the marginal rate.

Save for your grandchildren

Pensions can also be a tax-efficient way of saving for your grandchildren’s future. Children can receive tax relief on pension payments as long as they total no more than £3,600 a year and anyone can make these payments. This means that parents and grandparents can create a fund outside of their estate for the benefit of their children and grandchildren, so reducing their inheritance tax liability.

How LFS can help

Start saving for your future today with LFS’s pension plans. Two simple, flexible and manageable ways to save for your retirement.

Personal Pension Plan

  • Make as many regular or ad-hoc payments as you like
  • Invest in a range of funds or choose a Lifestyle profile
  • Increase, decrease, stop and start your payments to suit your circumstances
  • Tax relief can boost your pension savings
  • Flexible ways to take your savings at retirement

Stakeholder Pension Scheme

  • Receive tax relief on your pension savings
  • Simple and straightforward investment choices
  • Annual Management Charge not exceeding 1%
  • Flexible ways to pay to suit your circumstances
  • Your employer can make contributions too

Helping you to plan

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Tax information

Put simply, you don’t pay tax when saving into your pension, but you do when taking your pension.

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Countdown calendar

If you have a pension with us, we explain what happens as you get closer to retirement.


LF Money Markets Pension Fund – change of underlying investment fund and fund name

Posted 10 Jan 2019 |

The underlying investment fund into which the fund invests, the Janus Henderson Money Market Unit Trust, is closing and will be replaced by the LGIM Sterling Liquidity Plus Fund (which is managed by Legal and General Investment Management Limited). In addition, the LF Money Markets Pension Fund will be renamed “LF Cash Pension Fund”.