Why save in a pension? | Zurich

Why save in a pension?

Whatever you want from retirement – travel the world, spend time with friends or family – you’ll need to put aside some money when you’re working for the days when the pay cheques stop. Even if retirement is a far off dot on the horizon, it makes sense to start planning now for a retirement you’ll love. And saving for your retirement in a pension can have real advantages over other ways of saving.

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Three big reasons to save in a pension

1. Tax efficient way to save - tax relief on payments, tax-free growth and 25% back tax-free

Tax-relief on your payments

When you pay money into a pension, you get tax relief. A basic-rate taxpayer gets 20% tax relief on their pension payments, a higher-rate payer 40%, and an additional rate payer 45%. So, as a basic-rate taxpayer, for every £80 you pay into a pension, you get an extra £20 from the government, which means £100 is actually being invested for your retirement.

Tax-efficient growth when you’re saving

Your pension fund grows largely tax-free, which can help to boost the amount you have in your pension plan. Remember that the value of your fund can go down which affects how much you’ve got in your pension plan, resulting in less income when you retire.

Tax-free money – you can take up to 25% of your savings back tax-free

You can currently take up to 25% of your pension savings as a tax free sum. What you do with it is entirely up to you – except for one thing: you can’t put it into another pension plan. Otherwise, you’re free to spend it – or save it – anyway you please.

That leaves 75% or more in your plan which is taxable when you take it, but taking the tax-free sum will reduce the amount available to provide an income in retirement.

How it works

why save in a pension graphic                     John, a basic rate taxpayer wants to save £50 a month in his pension plan. The good news for John is he will only have to pay £40 as HM Revenue & Customs (HMRC) will give an additional £10 (basic rate tax relief).

2. No temptation to dip in - your money is locked away until you're 55

You generally can’t access your pot before you’re 55, unless ill-health stops you from working. If you do, it’s not illegal, but you will be hit with a huge tax bill that will swallow up a large chunk of your savings. This could be a good thing because it removes the temptation to dip into the funds you are saving for retirement.

3. Pass on your savings to your loved ones tax-free

If you die before you’re 75 and before you use your pension savings, they can usually be passed on to your loved ones as a tax-free cash sum.

Things to think about

Prioritising your money

Saving for your future is important but if you're having difficulties financially in the here and now, then you may want to consider reducing your debts and getting on top of things before you think about a pension. Then as your lifestyle changes, you may want to re-consider saving for your retirement.

Need to get your hands on your savings?

Normally you won't be able to get your hands on your savings until you're at least 55. On the flip side, think of this as a good thing - you can't be tempted to dip into funds you've put aside for retirement.

If you do want to get your hands on your retirement savings before 55, then a Zurich Stocks and Shares ISA might be an alternative option but bear in mind, you won’t receive tax relief on your payments but what you get back from your ISA will be tax free.

How much risk and the type of risk you want to take?

All types of saving carries some risk, even sticking it under the mattress has some risk. When you start saving in a pension you'll need to accept some risk and that the value of your savings could go down which will reduce the amount you get back in the future.

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Our pension plan - Zurich Retirement Account

Find out how the Zurich Retirement Account gives you choice when you're saving and when you retire.

Already have a pension plan with us?

Find a financial adviser

We can't give you advice but we can help you find a financial adviser and give you some hints on how to prepare for your first visit:


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If you don't currently have a financial adviser, you can find one near you at: unbiased.co.uk

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Or you can read reviews of financial advisers at: vouchedfor.co.uk

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