How can you save for your retirement?

So if you want to save for yourself, instead of relying on the State or your employers, what can you do? There are two main ways you can save, in an Individual Savings Account (ISA) and a pension plan, both of which have advantages. With the former you can take the money out for say a deposit on a home, and with the latter, as you cannot access the funds when you want, your will have the peace of mind that a pension fund will be there for your golden years. It makes financial sense to get the best of both worlds and save in ISAs and a personal pension.

ISAs

Individual Savings Accounts (ISAs) are a great way to save. They are available to individuals who are UK resident for tax purposes. The minimum contribution levels are low and ISAs are available to those aged 16 and over for a Cash ISA or aged 18 or over for a Stocks and Shares ISA. You can contribute up to £7,200 a year into an ISA and gain gross interest. You can also withdraw money from the majority of ISAs whenever you want.

There are two types of Individual Savings Accounts, a cash ISA or a stocks and shares ISA. You can invest up to £7,200 in stocks and shares in the 2008/2009 tax year in an ISA. Up £3,600 of this amount can be saved in cash with one provider. The remainder of the £7,200 can be invested in stocks and shares with the same provider.

The investment limits for the 2008/2009 tax year follow.

Cash ISA up to £3,600	Plus	The remainder of up to £7,200 in a Stocks and Shares ISA
Cash IFA up to £3,600	Or	Stocks and Shares ISA up to £7,200

Personal Pensions

With a pension plan you can contribute up to 100% of your salary into it (to a maximum of £235,000 for 2008/2009) and receive tax relief.

The tax relief is generous as for every 80p a basic taxpayer contributes to a pension, the government will add 20p. For a higher rate taxpayer, they will receive 40% tax relief, meaning they will pay just 60p for it to be topped up to £1 by the government.

It may be that you have to make your own pension provision. If so, you should consider saving in a personal pension plan. You can also save into a personal pension plan if you are a member of an employer’s pension scheme.

A straightforward personal pension plan is a “stakeholder” personal pension plan which is a type of low-charge pension in which you can save from as little as £20.

Or you could choose a personal pension which often offers a wider investment choice than what’s available with a “stakeholder” personal pension. But do be aware that personal pension plans often have higher minimum contributions and the charges could be higher too.

Self-invested personal pensions (Sipps) are another type of personal pension plan which are for more sophisticated pension investors as there are very few restrictions on what you can invest in. But do be aware that SIPPs can have high fees because of the width of the investment choices. There are well over 50 Sipp providers so speak to an Independent Financial Adviser to see if a “stakeholder” personal pension plan, a personal pension plan or a self invested personal pension plan is right for you.

Next page - How much should I save?