Is it worth taking out a private pension at 56?

26 January 2022

Question by Tony

Is it worth taking out a private pension at 56?

Answered by Graham Wells

Great question, Tony. It’s something many people ask as they move closer to retirement and sometimes, even after they’ve retired from full time work.

As always, when it comes to financial decisions like this, it depends on your individual circumstances. But there’s no reason to discount pensions purely because of your age.

The tax relief on pension contributions is hard to beat, no matter how close you are to your ideal retirement age. When you pay £80 into a pension, tax relief from HMRC brings that up to £100, so you enjoy an immediate return on your investment. Higher Rate and Additional Rate taxpayers can claim even more tax relief via their self-assessment tax return.

Assuming that you won’t need to draw the money back out for say, at least 5 years, then the potential for tax free growth is similar to ISAs.

Even if you end up never spending all of your pension, there can be tax benefits upon death. Pensions do not normally form part of your taxable estate, so any unused money can pass to nominated loved ones, free of inheritance tax.

Some of the questions you might consider to help make a decision include:

• How would you like to spend your days once you stop “earning a living”?
• How much income will you need to make the most of life after work?
• At what age do you hope to retire?
• How much projected retirement income have you built up already?
• Do you have access to a workplace pension that may offer better benefits than a private pension? (e.g. employer contributions or low investment fees)
• What level of investment risk might you feel comfortable with?

If there’s a gap between the lifestyle you want and the retirement provision you already have, additional pension funding could well make sense.

The questions above can take some thought and if you need help, working with a financial coach or financial planner is worth considering.

If you do end up needing to choose a private pension, the Boring Money pensions comparison page is a good place to start.

Best wishes for your retirement planning.


Answered by

Graham Wells

Financial Coach & Chartered Financial Planner

I love helping individuals and couples to develop financial knowledge, self-awareness and make bold, exciting plans for the future.