Life Sciences Professionals and pension plans - why it is important to review them

Throughout your working life as a Life Sciences Professional and as you approach retirement, you probably want to know when you can afford to stop working or cut down on the hours you do work. Having worked hard throughout your career you deserve to enjoy your retirement without having to worry about your finances. It may be an extremely worthwhile exercise to review your pension plans & contributions to make sure you are taking advantage of the incentives offered by the government and your employer.

Make the most of tax relief…

The government tops up your pension contributions in the form of tax relief at your highest rate of income tax to encourage you to save. Basic rate taxpayers receive tax relief of 20%, while higher rate and additional rate taxpayers can claim back 20% and 25% respectively through their tax returns.

Understand employer contributions - the level of matching contributions can vary significantly between different Life Sciences employers.

Since 2012, employers have been legally obliged to automatically enrol employees in a pension scheme, although you can opt out. As an incentive, employers top up employee contributions. The government increased the minimum contribution to 8% from April 2019 – at least 3% from employers with employees making up the balance. It is worth remembering that the employee’s contribution includes tax relief.

Are you saving enough?

There are no fixed rules about how much you should contribute to your pension because of course everyone’s circumstances are different. However, one rule of thumb is to take the age you started saving and divide it by two to give you the percentage of your salary which you might wish to put away each year. So, if you set up your pension at the age of 30, you could aim to pay in 15% of your salary.

Financial Modelling is a crucial element of financial/pension planning. Taking retirement as an example, would you like to stop working at a set age, work part time in retirement, travel the world or perhaps live more modestly? Working with a Financial Planner to understand the different options available to you and putting plans in place could be crucial to enjoy the retirement you would like.

Stick within the limits

There are rules covering how much you can contribute, and you could face a hefty tax bill if you break them. The annual allowance for the 2022/23 tax year is ￡40,000 or your full salary (whichever is lower).

There is also the lifetime allowance – the maximum amount you can withdraw from a pension scheme. It is currently ￡1,073,100 and as announced in the March 2021 budget will remain frozen until 2025/26. It’s probably wise to keep a close eye on the value of your pension if it starts approaching this limit.

Deciding whether or not you can afford to retire is a significant consideration, and so it makes good sense to regularly review how much you are saving and ensure you are taking full advantage of any incentives.

Did you know…?

Gender pay gap

Pensions for women are ￡7500 less than men on average and yet on average women live for three years longer than men.

A nation unprepared for retirement

Over half of the British population admits to either not saving for a pension or not saving enough for the retirement that they would like to live.

The rise of pensioners

In 1901, there were ten people working for every pensioner. By 2050 it has been predicted that there will be one pensioner to every two workers.

Carl Goulty is a Financial Planner specialising in Pensions, Investments, Retirement Planning and Financial Protection and has a special interest in advising Professionals from the Life Sciences Industry