The majority of workers across the UK now have a personal pension. Saving for your future is essential, and with the full state pension currently only giving you £175.20 a week, it’s vital to understand what’s happening with your money.
Saving into a pension is costly.
Saving any spare money into a pension is a good thing and can only help fund your lifestyle when you get to retirement. By making a couple of small changes every week, you could free up cash that could boost your pensions pot.
You still need to enjoy those little luxuries you work hard for and saving into a pension shouldn’t leave you penniless. But if you’re willing to make some small sacrifices and you might be surprised at what you can afford.
Don’t forget! For every £1 you save, the Government usually gives you 25p in tax-back, depending on your income tax banding.
Transferring your pension is expensive.
Many people think that transferring your pension from one provider to another is expensive, due to high exit fees, management exit fees or penalties the current provider will add.
Due to Government legislation, expensive penalty fees for moving your pension are nowhere near as prevalent, and a good independent financial adviser, regulated by the Financial Conduct Authority will always take into consideration these fees before recommending a transfer.
While your current provider may have a penalty fee, they may also be charging you a higher management fee annually than other providers. In the short to medium term, you could potentially recover any exit penalties you may need to come out of your pension.
The state pension will be enough when I retire.
You’ve worked hard all your life, and now you’ve decided to retire, the state pension will be enough to give you that comfortable retirement, right?
Even if you receive the maximum State Pension (get a state pension forecast here), you’ll only receive an annual income of just over £9,000 or £175.20 per week, and although your day-to-day expenses could be lower, it’s unlikely that the state pension will be enough on its own.
Another factor to consider is that your state pension has a fixed retirement date, so you will not have the flexibility of retiring early should you want too.
All is not lost though, and starting a pension, even if you’ve only a couple of years left can undoubtedly help boost your retirement income. A pension is one of the most tax-efficient saving products around.
Transferring pensions into one plan is risky.
While you may think pension consolidation is a good thing; reducing paperwork and making your money easier to keep track of, people still say ‘putting your eggs into one basket’ is unwise. Merging your pensions into one product and platform doesn’t mean that all of your funds are invested in the same place.
When choosing a pension, you can select a multi-asset fund, which means that your money isn’t stuck in a single commodity. A multi-asset pension allows you to spread the risk across different investment strategies, i.e. cash, property, commodities, stocks and shares for example.
Transferring your pensions into one pot with lower fees can instantly save you money, allowing your pension pot to grow quicker and will enable you to manage your pension easily.
Learn more about Pension Consolidation here.
I’m too old to start a pension.
You’re never too old to start a pension, and it’s one of the most tax-efficient ways of saving money. A pension is a long-term savings account and has the same rules as most savings accounts. You save money, the provider invests that money and gives you a small return back (interest or growth).
Of course, the earlier you can save into a pension, the more opportunities it has to grow. However, anything you can afford to put towards your retirement at any age is better than nothing at all and can go a long way to securing yourself a more comfortable retirement.
Since the compulsory auto-enrolment workplace pensions have been introduced, many older workers are ‘opting-out’ of the company pension. The amount you save over a short period before retirement may only add up to a few thousand, but by ‘opting-out’ you are missing out on ‘free’ money from the Government in tax-relief plus the minimum 3% pay-rise from your employer.
If I leave my employer or they go bankrupt, I will lose my pension.
When paying into a workplace pension, directly from your salary, then the money saved is held with your pension provider and your employer. The pension savings are your money and will not be lost if you move or if your employer closes.
When moving company, it’s advisable to check on your old workplace pension to see what fees your paying and how much money you’ve accumulated. You may wish to look into pension consolidation and move the funds into one performing pension plan.
All pension providers charge the same fee.
Different pension providers will charge different fees for the management of your pension pot. Providers may also charge different fees between products depending on the level of investment management they need to undertake. Multiple fees are particularly common with SIPPS (Self Invested Pension Plans).
While fees of 0.5% to 2% may not seem like a big difference, over several years, this difference could equate to thousands of pounds in lost income. Use our free pension calculator here to see the difference a pension provider charges can make.
We would always recommend speaking with an adviser and getting your pension assessed to see if you’re paying too much in fees and losing out on that valuable income boost.
Have more questions you need answering?
Hopefully, we’ve helped to bust some of these misconceptions about pensions. If you have any concerns or want some peace of mind about your pensions, call our team on 0161 413 7051 or click here to arrange a callback.
*Source The Actuary.com, Sept ‘19