Money Talk: Saving via pensions 

Over the last few years the government has done a fair amount to give low and middle income earners access to pensions. I think more has to be done, as simply saving a small percentage of income on a monthly basis is not enough. All employers will be required to provide staff members a work place pension by 2018. There is no exception, and if you contribute so does your employer.

So coming to the title the misconceptions:

When I die my pension dies with me – this is not true because if you do die, you will have a pot of money, which can be transferred to your loved ones, or those that you chose. Death pre 75 means tax free benefits upto £1 million for most people, and after 75 benefits are taxed at marginal rates

It is too difficult to set up – not anymore your employer has to set the pension up for you. In fact they have to actually auto enrol you, and then you need to choose if you want to keep the pension, or you want to come out of it. If you want a private pension for yourself, they are easy to set up, but you may need a financial adviser to pick funds for you.

My house is my pension – This is all well and good, but at retirement if you are going to sell to make ends meet, then where are you going to live. Your house also does not have any tax advantage i.e. a pension payment of £80.00 a month is actually a £100 as the government rewards for investing in a pension. The other issue is if you go into long term care, then your house will be sold at some stage to pay for this; however, a pension is protected if you are not taking benefits from the pension.

The government will help me – The state pension is designed as minimal income, and usually will not cover all your bills. I see many clients that are using savings, downsizing, or struggling significantly in retirement because they just have the state pension. Imagine paying all your bills, costs etc. on circa £150 per week. Could you live at the moment on circa £600 a month, and if the answer is no, then you know you need to do something.

The state pension is also pay as you go, and in my view quite unfair. This is because the workers of today are paying for those retired now, and the state pension age is increasing. Currently for a 32 year old it is 68, and it is likely it will hit 70 by the time the young of today retire, if not possibly even higher. If you pass away before state pension age, then in my view your national insurance contributions have gone to waste.

I am too old – You are never too old to save in a pension, and with the new changes leading to liberation of pensions, saving for even a few years could mean you are far better off. You can save till 75 and still get tax relief from your pension.

I am too young – Ask an older person how soon years fly by. The younger you start the more time your monies have to grow i.e. £1000 today invested will have more time to grow than £1000 invested in 10 years, when you retire in 30 years.

Overall, put simply we all need to invest into pensions. I do not wish to rely on state benefits because the way things are going, the state will have less and less to give out in the form of benefits; therefore I strongly believe people need to fund their own retirement. I am doing the same, and honestly it’s the best investment I have ever made, as its invested, I cannot touch it till I am 55, and it is there to protect me in old age.

 

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