With so much change in the pensions industry it can be tough to sort fiction from fact. Here we’ve debunked some of the most common myths.
1. It’s not worth having a workplace pension
Not true! Most people receive more back than they contributed. They also receive contributions from their employers and, in the NOW: Pensions scheme, if they are tax payers, they receive tax relief from the government.
2. My property is my pension
Relying solely on your property to fund your retirement isn’t necessarily a wise idea. Because, let’s face it, we all need somewhere to live!
When push comes to shove, few people really want to downsize or leave the area where they have friends, family and a lifetime of memories. Many also want to keep their property to pass on as an inheritance to their loved ones.
Having pension savings will give you choice. Downsize if you want to, but not because you have to.
3. I’m too old to start a pension
At NOW: Pensions, the highest proportion of people opting out of the scheme are those over the age of 50. While it could be the case that these people have already set aside enough for a comfortable retirement, many might think that it’s simply too late.
But, pension saving at any age still pays for two reasons. Firstly, if you opt out, you’ll miss out on “free money” in the form of a contribution from your employer. Secondly, saving into a pension is probably the most tax efficient way to save. As soon as you hit 55, you can withdraw all of your pension savings as cash – if that’s what you want to do – and 25% will be tax-free.
4. I’m too young to start a pension
Starting early makes a huge difference thanks to the magic of compound interest. If you are employed, you are only automatically joined to the company pension from the age of 22, but you can still join earlier by ‘opting in’.
5. Once you’re past a certain age, it’s too late
Also not true! A small pension is better than no pension. Of course, it’s better to start early but we still advise you to start a pension, whatever your age – and contribute as much as you can afford.
6. I can’t afford it
With all the pressures on already stretched pay packets it is understandable that, for some, pension saving is just a step too far. But, think carefully about what you’ll miss out on if you opt out and the affect that might have on your future finances. With auto enrolment, if you opt out you’ll be re-enrolled again every three years when hopefully your financial situation will have improved.
7. My pension will be lost if I die before retirement
What happens to your pension when you die depends on the type of scheme you have. In the NOW: Pensions Trust, if you die before you are able to access your retirement savings, the money that is saved in your retirement pot will be payable as a lump sum to your beneficiary or beneficiaries at the discretion of the Trustee. Usually your beneficiaries won’t pay any personal or inheritance tax on the sum they receive. You can find out more information about this here.
8. The State Pension will be enough for my retirement
The full amount of new State Pension is currently £164.35 a week – that’s just over £8,500 a year. For most people, this won’t be enough to fund to sort of lifestyle they want in retirement which is why having your own pension savings is so important.