Automatic enrolment into a workplace pension makes it easier for people to start saving for their retirement, but there’s still a lot of confusion surrounding pensions and saving. And the sooner you start, the more time your money has to grow.
Here are some things we often hear about pensions - to help clear up any common misunderstandings:
1. It’s not worth saving into a pension
FALSE! Realistically we all know that pensions can go up as well as down, but analysis suggests that for over 95 per cent that improvement is greater than the cost of the contribution, even after allowing for inflation. For over 70 per cent the expected improvement is more than twice what they put in.
2. My house will be my pension pot
BE CAREFUL! Property doesn’t allow you to spread your money across a range of different investments like a pension does, and doesn’t have the same tax advantages.
3. My partner will be my pension pot, or I’ll inherit money from my parents
BE CAREFUL! Inheritances can be uncertain, so it’s important to plan and save for yourself. Increasing numbers of people are surviving into their 90s and longer, so your parents may still be alive when you retire! You might also find yourself in a difficult situation, in the case of divorce for example.
4. I can only pay in a small amount so it isn’t worth it
FALSE! Although your payments into a workplace pension may be a small percentage of your salary, you’ll also benefit from extra money from your employer and through tax relief*. Even if you can only save a small amount, saving regularly and starting early helps your pension pot build up.
For a rough guide to how much your employer will pay into your workplace pension try our pension contributions calculator.
5. I’m too old to start saving
MYTH! It’s usually better to start saving now than not at all, plus you’d be turning away extra money from your employer and tax relief* by not having a workplace pension. Unless your retirement is just a few months away, there’s still time for you to build up some savings. If your pension pot is a small amount when you retire, you may be able to take it as a cash lump sum.
Read these cost-cutting ideas to help you save money on everyday things now, and save for your retirement later.
6. My grandma only lived to be 70 so surely I won’t live much longer, why bother saving?
BE CAREFUL! People tend to underestimate how long they’re likely to live and life expectancy across the generations is changing fast. On average it’s now likely we’ll spend 20 years in retirement, so you need to plan for it.
7. The State Pension will be enough
BE CAREFUL! A State Pension will help you to cover the basics. Saving in a workplace pension means you'll have more money to help continue doing the things you want when you're no longer earning from a paid job.
* Tax relief means the money that would have gone to the government as income tax goes into your pension instead.